MPC and MPS definitions? (1 Viewer)

[*Pooja*]

i dont get the concept of this. i feel like if i dont get this i wont get the multiplier effect. can sum1 pls refresh me on the definitions and explain the multiplier effect?

 

[jackii_87]

wells.
MPC - marginal propencity to consume
MPS - marginal propencity to save

its like the likelyhood to consume/save. You noe that mps + mpc = 1

eg; if mpc = 0.8, mps = 0.2


so, to find the multiplier, you use the formula dats given to u in the text book;
multiplier = 1/mps, or 1/1-mpc (since mps + mpc = 1)

in this case ( mpc = 08, mps = 0.2 )
k = 1/0.2 = k
therefore, the multiplier is k = 5
from here you just times the multiplier with the given amount in the question... to get the multiplier effect

 

[Jago]

Because i had this lying around in the computer:

Marginal Prosperity to Consume – MPC
The Marginal Prosperity to consume is that proportion of extra income that is used for consumption spending. People on high incomes normally have a lower MPC than people on low incomes.

Marginal Prosperity to Save – MPS
The Marginal Prosperity to save is that part of extra income that is used for savings. People on high incomes normally have higher MPS than people on a low income.

Formula for MPC = change in C / change in Y

Formula for MPS = change in S / change in Y

MPS + MPC = 1

 

[*Pooja*]

ok thanks ppl.