Distinguish between Propensity to Consume and Propensity to Save, with – InterviewSolution

InterviewSolution

1.

Distinguish between Propensity to Consume and Propensity to Save, with the help of numerical examples.

Answer»

Propensity to Consume is the ratio of change in consumption over change in income. In short, MPC = △C/ △Y

Propensity to Save is the ratio of change in saving over change in income. In short, MPS = △C/ △Y

Y	C	△C	MPC = △C/△Y	S	△S	MPS = △S/△Y
0	50	-	-	-	-	-
100	100	50	0.5	0	-	-
200	150	50	0.5	50	50	-
300	200	50	0.5	100	50	0.5
400	250	50	0.5	150	50	0.5
500	300	50	0.5	200	50	0.5

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