Why do the MPC and MPS add up to 100%? Why do they APC and APS...

Question

Question

Why do the MPC and MPS add up to 100%? Why do they APC and APS add up to 100%?

Answer 1

Answer #1

Income = Consumption + Savings

Change in income = Change in consumption + Change in savings

It says that a person either consumes good or save money from the income they earn.

MPS = Change in S / Change in Y

As, Change in C / Change in Y + Change in S / Change in Y = [(Change in C + Change in S) / Change in Y]

Change in Y / Change in Y = 1

Thus we can say that MPC + MPS = 1 (in % terms we can write 100%)

APS = Savings / Income

As, Consumption / Income + Savings / Income = [(Consumption + Savings) / Income] = Income / Income = 1

Thus APC + APS = 1 (in % terms we can write 100%)

Answer 2

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