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Home Questions BQK2WED9H2
Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Determination of Income and Employment

Question:

If all the increased income is consumed, then the value of MPS will be :

Options:

0

1

∞

-1

Correct Answer:

0

Explanation:

The correct answer is option (1) : 0

The Marginal Propensity to Consume (MPC) is the proportion of an additional unit of income that a consumer will spend on goods and services, rather than save. It is the change in consumption divided by the change in income. Mathematically, the MPC is expressed as:

MPC = change in consumption/change in income

Given the scenario where all increased income is consumed (spent) rather than saved:

  • If all the increased income is consumed (spent), it means none of the additional income is saved.
  • MPS is calculated as the change in savings divided by the change in income. Since there is no change in savings (all income is consumed), the numerator (change in savings) is 0.
  • Therefore, MPS = 0, because there is no savings to divide by the additional income.

In summary, if all increased income is consumed, the value of MPS is 0 because no income is saved. This indicates that households are not setting aside any portion of their additional income for savings; instead, they are using it all for consumption.

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