Question

Can MPS or MPC ever be negative? Give reasons in support of your answer.

Answer 1

No. Neither MPS nor MPC can ever be negative. MPS is the ratio of additional saving $\left(\Delta \text{S}\right)$ to additional income $\left(\Delta \text{Y}\right)$. Likewise, MPC is the ratio of additional consumption $\left(\Delta \text{C}\right)$ to additional income $\left(\Delta \text{Y}\right)$. The ratio $\left(\frac{\Delta \text{S}}{\Delta \text{Y}}\right)$ refers to slope of the S-function which is always positive (because of positive relationship between S and Y).

Likewise, the ratio $\left(\frac{\Delta \text{C}}{\Delta \text{Y}}\right)$ refers to slope of the C-function which is always positive (because of the positive relationship between C and Y).