Trusted by millions of Kenyans
Study resources on Kenyaplex

Get ready-made curriculum aligned revision materials

Exam papers, notes, holiday assignments and topical questions – all aligned to the Kenyan curriculum.

Based on the circular flow of income analysis, explain why marginal propensity to consumer plus marginal propensity to save equals one.

Based on the circular flow of income analysis, explain why marginal propensity to consumer
plus marginal propensity to save equals one.

Answers


Wilfred
Disposable income is either consumed or saved, and any change in this income causes changes in
consumption and savings; the ratio of change in consumption to change in income measures the
marginal propensity to consume (mpc), while the ratio of change in savings to change in income
represents marginal propensity to save (mps).

Thus, if:
C = 0.8 Yd
S = 0.2Yd
Then ?c/?Yd = 0.8 = mpc
and ?s/?Yd = 0.2 = mps
(0.8 + 0.2) = 1; ?mpc + mps = 1.

chart1722019905.png
Wilfykil answered the question on February 7, 2019 at 05:06

Answer Attachments

Exams With Marking Schemes

Related Questions