Question

Calculate the marginal propensity to consume in an economy, when the MPS is 0.2.

Answer 1

Marginal propensity to save refers to the percentage change in savings for every one rupee of change in the income. Similarly, marginal propensity to consume refers to the percentage change in consumption for every one rupee of change in the income.

$MPC+MPS$

$=\frac{△C}{△Y}$ + $\frac{△S}{△Y}$

$=\frac{△C+△S}{△Y}$

$=\frac{△Y}{△Y}$
$MPC+MPC=1$
$MPC=1-MPS$

$=1-0.2$

$=0.8$