1. What is MPC and MPS?

The Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) are fundamental concepts in Keynesian economics that describe how households divide additional income between consumption and saving.

2. How Does the Calculator Work?

The calculator uses the basic relationship:

Where:

• \( MPC \) — Marginal Propensity to Consume (fraction of additional income spent)
• \( MPS \) — Marginal Propensity to Save (fraction of additional income saved)

Explanation: Since all additional income must be either spent or saved, the sum of MPC and MPS must always equal 1.

3. Importance of MPC and MPS

Details: These values are crucial for understanding consumer behavior, predicting economic multipliers, and formulating fiscal policy. Higher MPC generally leads to greater economic stimulus from government spending.

4. Using the Calculator

Tips: Enter either MPC or MPS (between 0 and 1), and the calculator will compute the other value. Or enter both to verify they sum to 1.

5. Frequently Asked Questions (FAQ)

Q1: What are typical MPC values?
A: In developed economies, MPC typically ranges from 0.6 to 0.9, meaning 60-90% of additional income is spent.

Q2: Can MPC be greater than 1?
A: Normally no, but in special cases with borrowing, temporary MPC can exceed 1.

Q3: How does MPC affect the multiplier effect?
A: Higher MPC leads to a larger multiplier (1/(1-MPC)), meaning more economic impact from fiscal stimulus.

Q4: Do MPC and MPS vary by income level?
A: Yes, lower-income households typically have higher MPC as they spend more of additional income.

Q5: How is MPC different from APC?
A: MPC is marginal (change in consumption/change in income) while APC is average (total consumption/total income).