Final answer:
The sum of Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS) is always 1, not 5. Therefore, the statement 'When added together, MPC and MPS will equal 5' is false.
Step-by-step explanation:
When considering the relationship between the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS), it is a fundamental economic principle that their sum equals 1. This is because all disposable income is either consumed or saved. Therefore, if you have an MPC of 0.9, it logically follows that the MPS will be 0.1, since 0.9 + 0.1 = 1. For instance, if someone's MPS is 30%, the MPC would be 1 - 0.3, which equals 0.7. In this scenario, the spending multiplier can be calculated and utilized in further analyses of economic impact.
Let's correct the statement: When added together, MPC and MPS will equal 1, not 5. Thus, the correct answer to the question is False.
The statement is false. When added together, the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS) always equal 1. These terms refer to the portion of additional income that individuals consume and save, respectively.
For example, if the MPC is 0.8, it means that for every additional dollar of income, individuals will spend 80 cents and save 20 cents. In this case, the MPS would be 0.2 (1 - 0.8 = 0.2).