Question
Write notes on the following:
Relationship between MPC and MPS.
or
Why can value of MPC be not greater than one?
or
Can MPS or MPC ever be negative?
or
What can be maximum value of MPS?
Solution
Relationship between MPC and MPS.
The sum of MPC and MPS is equal to unity, i.e., MPC + MPS = 1.
For convenience sake, suppose a man's income increases by र 1. If out of it, he spends 70 paise on consumption (i.e., MPC = 0.7) and saves 30 paise (i.e., MPS = 0.3), then MPC + MPS = 0.7 + 0.3 = 1.
Again MPC + MPS = 1 is also proved below. We know that income (Y) is either spent on consumption (C) or saved (S). Symbolically:
or
Dividing both sides, by
we get
or,
The sum of MPC and MPS is equal to unity, i.e., MPC + MPS = 1.
For convenience sake, suppose a man's income increases by र 1. If out of it, he spends 70 paise on consumption (i.e., MPC = 0.7) and saves 30 paise (i.e., MPS = 0.3), then MPC + MPS = 0.7 + 0.3 = 1.
Again MPC + MPS = 1 is also proved below. We know that income (Y) is either spent on consumption (C) or saved (S). Symbolically:
or
Dividing both sides, by
we getor,
From this, the relationship can also be expressed in the following way:
MPC = 1 – MPS
MPS = 1 – MPC
Clearly if one is given, we can find out the other because sum of MPC and MPS is equal to unity, i.e., incremental (additional) income.
