Economics Exam > Economics Questions > MPS = 1 - MPC. Is it true?a)Falseb)Truec)Depe...
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MPS = 1 - MPC. Is it true?
- a)False
- b)True
- c)Depends on their values
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
Verified Answer
MPS = 1 - MPC. Is it true?a)Falseb)Truec)Depends on their valuesd)None...
The statement MPS = 1 - MPC is True
- MPS stands for Marginal Propensity to Save, which is the portion of additional income that a household saves rather than spends.
- MPC stands for Marginal Propensity to Consume, which is the portion of additional income that a household spends on consumption.
- In a simple economic model, the sum of MPS and MPC equals 1, as all additional income is either saved or consumed.
Thus, MPS = 1 - MPC is a correct relationship.
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