MPC and the MPS

Related BrainMass Solutions

• consumption function

  17158 (MPC and MPS) If consumption increases by $12 billion when real disposable income increases by $15 billion, What is the value of the MPC? What is the relationship between the MPC and the MPS? If the MPC rises, what must happen to the MPS?

• Calculate the multiplier

  Calculate the multiplier for the following cases MPS=0.25 MPC=5/6 MPS=0.125 MPC=6/7 C=$200=0.85y =========================== Multiplier = k = 1/(1-MPC) = 1/MPS; MPC+MPS = 1 MPS=0.25 ==> k = 4 MPC = 5/6 ===> k = 6 MPS = 0.125

• Explain why the MPC and the MPS must always add up to one.

  146120 Explain why the MPC and the MPS must always add up to one. MPC and MPS describe consumer's tendencies to fully utilize their income. MPC relates to consumption tendency while MPS to saving tendency.

• MPC and MPS

  450815 MPC and MPS Explain the relationship between the marginal propensity to consume and the marginal propensity to save. How do these two components affect GDP?

• Definitive Explanation of MPC, MPS & the Spending Multiplier

  MPS = 1-MPC, so if a person wants to save 10% of his money, his MPS is 0.1 and his MPC is 0.9. If everyone who makes transactions with the same money has an MPC of 0.9, that means that 90% of the money will be spent each time.

• MPC (Marginal Propensity to Consume)

  (MPC and MPS) If consumption increases by $12 billion when real disposable income increases by $15 billion, what is the value of the MPC? What is the relationship between the MPC and the MPS? If the MPC rises, what must happen to the MPS?

• the change in equilibrium output

  The MPC is given to be 0.8, and therefore using the relation MPC + MPS = 1, we can find MPS to be 0.2. Also, the multiplier is given to be 1/MPS, and hence in this case it will be 1/0.2 = 5.

• effect of changing the savings rate on consumption

  marginal propensity to consume (MPC) = 1 - marginal propensity to save 20 years ago, MPS = 20%, then MPC = 1-20% = 80% now, MPS = 5%, then MPC = 1-5% = 95% Therefore, there is a 15 percentage point increase in MPC.

• The consumption function

  Higher interest rates will raise people's incentive to save, and hence raise the MPS, thus lowering MPC. Lower interest rates on the other hand raise MPC and lower MPS. Thus, they both affect consumption and savings functions.