What is Marginal Propensity to Consume? How is it related to Marginal Propensity to Save?
Marginal Propensity to Consume is the ratio of change in consumption expenditure ($\Delta C$) to
change in income ($\Delta Y$). So, MPC = $\Delta C$ / $\Delta Y$
Marginal Propensity to Save is the ratio of change in saving ($\Delta S$) to change in income
($\Delta Y$).
MPS = $\Delta S$ / $\Delta Y$
Aggregate of Marginal Propensity to Consume and Marginal Propensity to Save is equal to one. or
MPC + MPS =1
This is because $\Delta C$ / $\Delta Y$ + $\Delta S$ / $\Delta Y$ = $\Delta Y$ / $\Delta Y$ = 1 ($\Delta C$ + $\Delta S$ = $\Delta Y$)
So, MPC + MPS =1,
or MPC = 1 - MPS, or MPS = 1 - MPC