Question

which of the following statements is false? a. mpc plus mps equals 1. b. if mpc equals 0.80, autonomous consumption equals $400, and disposable income equals $600, then consumption equals $880. c. the mps is the ratio of the change in saving to the change in disposable income. d. mpc is additional saving divided by additional disposable income.

Answer 1

The false statement is b. If MPC equals 0.80, autonomous consumption equals $400, and disposable income equals $600, then consumption equals $880.

Step-by-step explanation:

To determine which of the following statements is false:

a. MPC plus MPS equals 1. This statement is true as the Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) always add up to 1.

b. If MPC equals 0.80, autonomous consumption equals $400, and disposable income equals $600, then consumption equals $880. This statement is false. Autonomous consumption (C0) is not factored into the calculation. You would only need to multiply the MPC (0.80) by the disposable income ($600) to find the consumption, which equals $480 in this case.

c. The MPS is the ratio of the change in saving to the change in disposable income. This statement is true. MPS is calculated by dividing the change in saving by the change in disposable income.

d. MPC is additional saving divided by additional disposable income. This statement is true. MPC represents the additional consumption spending resulting from an increase in disposable income.

Therefore, the false statement is b. If MPC equals 0.80, autonomous consumption equals $400, and disposable income equals $600, then consumption equals $880.