Question

If MPC is 0.2, then MPS will be

• A. 0.8
• B. 0.2
• C. 0.4
• D. -0.2

Hint:

Always remember the fundamental relationship: MPC + MPS = 1. If you know one, you can easily find the other.

Answer 1

The Correct Option is A

The Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS) represent the two possible uses of an additional unit of income. An extra dollar of income can either be spent or saved. Therefore, the sum of MPC and MPS must always be equal to 1. The formula is: \[ MPC + MPS = 1 \] Given that MPC = 0.2, we can solve for MPS: \[ 0.2 + MPS = 1 \] \[ MPS = 1 - 0.2 \] \[ MPS = 0.8 \]