Question

If the value of marginal propensity to consume is 0.8, what will be the value of marginal propensity to save?

• A. 1.8
• B. 1.0
• C. 0.2
• D. Zero

Hint:

Think of an extra rupee of income. If 80 paise (0.8) is consumed (MPC), the remaining 20 paise (0.2) must be saved (MPS). The two parts always add up to one.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
This question relates to the fundamental relationship between the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS). Any additional income (\(\Delta Y\)) is either consumed (\(\Delta C\)) or saved (\(\Delta S\)).

Step 2: Key Formula or Approach:
The relationship between MPC and MPS is given by the equation: \[ \text{MPC} + \text{MPS} = 1 \]

Step 3: Detailed Explanation:
We are given the value of MPC: \[ \text{MPC} = 0.8 \] Substituting this value into the formula: \[ 0.8 + \text{MPS} = 1 \] To find MPS, we rearrange the equation: \[ \text{MPS} = 1 - 0.8 \] \[ \text{MPS} = 0.2 \]

Step 4: Final Answer:
If the marginal propensity to consume is 0.8, the marginal propensity to save is 0.2. Therefore, option (C) is the correct answer.