Answer to Question #246415 in Macroeconomics for Biba

Question

4. I consume all my income at every level of income. Draw my consumption and saving functions. What are my MPC and MPS?

Answer 1

The Consumption schedule also called Consumption function is the relationship between disposable income and consumption of the consumers. There is a concept within consumption called Propensity to consume. This is the percentage of total earning or income growth that people desire to incur on purchase of goods and services instead of saving.

As the individual consume all the income it means MPC is equal to 1 and as the individuals don’t save anything so MPS is zero.

Represent the graph as follows:

Here it is assumed that autonomous income is zero.

The, consumption function is a 45-degree line passing through origin in consumption income framework and savings function is a horizontal straight line at zero.