Asked by Yasmin Neves on May 09, 2024
Verified
Which of these relations is correct?
A) APC - APS = 1
B) MPC + MPS = 1
C) APC + MPC = 1
D) 1 + MPC = MPS
MPC
A measure of the rate at which consumers are likely to spend additional income, rather than save it.
APS
Average Propensity to Save; the proportion of income that an individual or population saves rather than spending on consumption.
- Comprehending the importance of the marginal propensity to consume (MPC) and marginal propensity to save (MPS) and their relation.
Verified Answer
FD
Frankie DoyleMay 11, 2024
Final Answer :
B
Explanation :
The correct relation is MPC + MPS = 1, which represents that total income is either consumed or saved. MPC (Marginal Propensity to Consume) is the ratio of change in consumption to change in income, while MPS (Marginal Propensity to Save) is the ratio of change in saving to change in income. When we add the percentage of income that is consumed (MPC) and the percentage of income that is saved (MPS), it equals 1, which means the entire income is either consumed or saved. So, option B is the correct relation.
Learning Objectives
- Comprehending the importance of the marginal propensity to consume (MPC) and marginal propensity to save (MPS) and their relation.