Question

Explain that the sum total of marginal propensity to consume (c) and marginal propensity to save (s) is equal to 1.

Answer 1

We understand that when a person earns extra income, a portion of it is spent on consumption while the remaining part is set aside as savings.

ΔC + ΔS = ΔY

⇒ `(ΔC)/(ΔY) + (ΔS)/(ΔY) = (ΔY)/(ΔY)` ...[(dividing both sides by ΔY)]

or MPC + MPS = 1