When the marginal propensity to consume is less than 1, the:
A) Average propensity to consume is greater than 1
B) Average propensity to save is greater than 1
C) Marginal propensity to save is negative
D) Marginal propensity to save is positive

Question

Quizplus · Accepted Answer

When the marginal propensity to consume is less than 1, the marginal propensity to save is positive. This means that for every additional dollar earned, individuals will save a portion of it, rather than consuming all of it. The average propensity to consume can still be less than 1 if individuals are saving a significant portion of their income. The average propensity to save cannot be greater than 1, as this would imply that individuals are saving more than their total income, which is not possible.

When the Marginal Propensity to Consume Is Less Than 1