MPC and MPS in Economics: Understanding Marginal Propensity to Consume and Marginal Propensity to Save

What do MPC and MPS represent in economics?

Choose the correct option:

a) 0.25; 0.25

b) 0.25; 0.75

c) 0.75; 0.75

d) 0.75; 0.25

Answer:

The MPC is 0.25 and the MPS is 0.25.

In economics, MPC stands for Marginal Propensity to Consume, which represents the change in consumption for a given change in income. If the MPC is 0.25, it means that for every additional unit of income, 0.25 units will be consumed.

MPS, on the other hand, stands for Marginal Propensity to Save. It represents the change in savings for a given change in income. Since MPC + MPS = 1, the total income is distributed between consumption and saving. When MPC is 0.25, MPS will be 0.75 (1 - 0.25).

Therefore, the correct option is (a) 0.25; 0.25.