In the context of a consumption function for an economy, if MPC = 0.6, then what is the likely value of MPS?

Correct option is A

The correct answer is (a) 0.4

• In macroeconomics, the sum of Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) is always equal to 1, i.e.,

  $$MPC+MPS=1$$

• Given that MPC = 0.6, we can find MPS as:

  $$MPS=1-MPC=1-0.6=0.4$$

• Therefore, the Marginal Propensity to Save is 0.4.

Information Booster:

• MPC (Marginal Propensity to Consume): Portion of additional income spent on consumption.

• MPS (Marginal Propensity to Save): Portion of additional income saved.

• Values of MPC and MPS range between 0 and 1.

• A higher MPC implies more consumption, and lower MPS implies less saving.

• These concepts are key to determining multiplier effects in Keynesian economics.