-To economists, there really only two things you can do with your money: spend it or save it.
-In other words, Disposable Income = Consumption + Savings
-If your disposable income changes, then your consumption, savings, or a combination of both will change.
-We use the terms marginal propensity to consume and marginal propensity to save to analyze this topic.
-In economics, the word marginal means ‘change in’ or ‘addition to’. Propensity refers to the tendency for something to happen.
-So the marginal propensity to consume/save just refers to how we would alter our spending/savings when our income changes.
-The marginal propensity to consume (MPC) is the rate that consumption will change for a given change in disposable income. In other words, MPC = Change in Consumption / Change in Disposable Income.
-The marginal propensity to save (MPS) is the rate that savings will change for a given change in disposable income. In other words, MPS = Change in Savings / Change in Disposable Income.
-MPC + MPS = 1 (THIS IS AN IDENTITY; IT IS ALWAYS TRUE)
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