Explain the relationship between the marginal propensity to consume and the marginal propensity to save.

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The marginal propensity to consume (or MPC) is defined as the increase in consumption by a household for an increase of one dollar in household income.

Or MPC = change in consumption / change in income.

The amount that is not consumed is considered to be saved. The marginal propensity...

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The marginal propensity to consume (or MPC) is defined as the increase in consumption by a household for an increase of one dollar in household income.

Or MPC = change in consumption / change in income.

The amount that is not consumed is considered to be saved. The marginal propensity to save (or MPS) is the increase in the amount that a household saves for a dollar increase in household income.

Or MPS = change in saving / change in income.

MPS and MPC are related by the expression MPC + MPS = 1.

For example, if there is an increase in household income of $1000, of which $600 is consumed, the MPC = 600/1000 = 0.6
The MPS in this case is (1000 – 600)/1000 = 0.4

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