Question

Suppose you get $500 for your birthday. you spend $400 and save the remaining $100. hence, the marginal propensity to save or mps is equal to:_______

Answer 1

Assuming that you received $500 for your birthday, spent $400 of it, and saved the remaining $20. There are 20 MPs, or marginal propensities to save.

MPS= change in savings/change in income. A change in income of $500 changes savings by $20

Why Do People Have a Marginal Propensity to Consume?

• The opposite of MPS is the marginal propensity to consume (MPC). The link between income and consumption is quantified with the aid of MPC.
• By dividing the change in spending by the change in income, one can determine their marginal propensity to consume.
• In order to calculate how much spending rises for every dollar of increased income, MPC measures this relationship.

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