Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 23, Problem 1.1P
To determine
The relationship between MPC and MPS and
Expert Solution & Answer
Explanation of Solution
Option (a):
MPC is the marginal propensity to consume which represents that portion of change in income that is consumed or spent.
Option (b):
MPS is the marginal propensity to save which represents that portion of change in income that is saved.
Option (c):
Aggregate output refers to the total quantity of goods and services produced over a given period of time in an economy.
Option (d):
Aggregate income refers to the total amount received by all factors of production in a given time period.
The relationship between MPC and MPS can be established as follows:
Since all the income is either consumed (spent) or saved;
The relationship between aggregate output and aggregate income is that both are actually the same thing viewed from different points.
Economics Concept Introduction
Concept introduction:
Marginal propensity to consume (MPC): Marginal propensity to consume refers to the sensitivity of change in the consumption level due to the changes occurred in the income level.
Marginal propensity to save (MPS): The ratio of change in saving when there is a change in disposable income.
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Chapter 23 Solutions
Principles of Economics (12th Edition)
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