ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The MPC and MPS are equal to each other because:
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it’s the law of economics
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you can only consume as much as you save
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you can only save as much as you consume
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you can only save money or spend it
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Explanation:
Detailed explanation-1: -MPS + MPC = 1 Since income is equal to the summation of consumption and saving, change in income also equals the sum of the change in consumption and change in saving. Therefore, the sum of MPC and MPS is equal to one.
Detailed explanation-2: -The marginal propensity to consume (MPC) is the complement to MPS; added together they should always equal one.
Detailed explanation-3: -Hence, the value of the multiplier is two.
Detailed explanation-4: -MPC=CY. Marginal propensity to save refers to the ratio of change in saving to change in income. MPS=SY. The sum of marginal propensity to consume and marginal propensity to save is equal to one. MPC = 1-MPS, MPS = 1-MPC.
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