Determination of Income and Employment — Economics STD 12 Humanities & Commerce — Question

1. If MPC remains constant, MPS would also be constant.

2. If MPC falls, MPS increases and vice versa.

$\text{MPC}\downarrow\rightarrow\text{MPS}\uparrow$

3. MPC + MPS = 1

Proof: We know that income (Y) is either spent on consumption (C) or saved (S), i.e.,

Y = C + S

or $\Delta\text{Y}=\Delta\text{C}+\Delta\text{S}$

By dividing both sides by AY, we get,

$\frac{\Delta\text{Y}}{\Delta\text{Y}}=\frac{\Delta\text{C}}{\Delta\text{Y}}+\frac{\Delta\text{S}}{\Delta\text{Y}}$

1 = MPC + MPS

Numericals:

You Must Know,

1. $\text{Y}=\text{C}+\text{S}$

2. $\text{AD}=\text{C}+\text{I}$

3. $\text{AS}=\text{C}+\text{S}$

4. $\text{APS}=\frac{\text{C}}{\text{Y}}=1-\text{APS}$

5. $\text{MPS}=\frac{\Delta\text{C}}{\Delta\text{Y}}=1-\text{MPS}$

6. $\text{MPS}=\frac{\Delta\text{S}}{\Delta\text{Y}}=1-\text{MPC}$

7. $\text{C}=\bar{\text{C}}+\text{B}(\text{Y})$

8. $\text{S}=-\bar{\text{C}}+(1-\text{b})\text{Y}$