Question

Define MPC (Marginal Propensity to Consume), MPS (Marginal Propensity to Save), APC (Average Propensity to Consume), and APS (Average Propensity to Save).

Answer 1

The Marginal Propensity to Consume (MPC) is the fraction of each additional dollar of income that is spent on consumption. The Marginal Propensity to Save (MPS) is the fraction of each additional dollar of income that is saved. The Average Propensity to Consume (APC) is the total consumption divided by the total income, and the Average Propensity to Save (APS) is the total savings divided by the total income.

Step-by-step explanation:

The Marginal Propensity to Consume (MPC) is the fraction of each additional dollar of income that is spent on consumption. The Marginal Propensity to Save (MPS) is the fraction of each additional dollar of income that is saved. The Average Propensity to Consume (APC) is the total consumption divided by the total income, and the Average Propensity to Save (APS) is the total savings divided by the total income.

For example, if the MPC is 0.9, it means that for every additional dollar of income, 90 cents will be spent on consumption. On the other hand, the MPS would be 0.1, meaning that 10 cents will be saved out of every additional dollar earned.