Question

What is the relationship between marginal propensity to save and marginal propensity to consume?

Answer 1

Marginal Propensity to consume refers to the percentage change in consumption for every one rupee of change in the income.

MPC= change in consumption/ change in income = ^C/^Y

Marginal Propensity to save refers to the percentage change in savings for every one rupee of change in the income.

MPS= change in savings/ change in income = ^S/^Y

MPC+MPS

= ^C/^Y+ ^S/^Y

=^C+^S/ ^Y

=^Y/^Y

=1

Hence, MPC+MPS=1.