In general, the marginal propensity to spend is the change in total desired expenditure induced by a change in whereas the marginal propensity to consume is the change in desired consumption expenditure induced by a change in . In the case of the simplest macro model with no government and no international trade, however, the marginal propensity to spend is the marginal propensity to consume.
A)national income ; disposable income ; equal to
B)national income ; disposable income ; greater than
C)national income ; disposable income ; smaller than
D)disposable income ; national income ; equal to
E)disposable income ; national income ; greater than

Question

Quizplus · Accepted Answer

In the simplest macro model with no government and no international trade, there is only one source of income - national income, and the only use for that income is either consumption or saving. Therefore, the marginal propensity to spend is the same as the marginal propensity to consume, as any change in national income will result in a corresponding change in disposable income, leaving consumption as the only possible outlet for that change in income. Therefore, the correct answer is A, where the marginal propensity to spend and the marginal propensity to consume are both defined in terms of national income and disposable income is not relevant in this context.

In General, the Marginal Propensity to Spend Is the Change