As disposable income increases, consumption spending will rise, but it will rise by less than disposable income if the MPS is positive.

Question

Quizplus · Accepted Answer

This statement is true. The marginal propensity to save (MPS) measures how much of an increase in disposable income is saved rather than spent. If the MPS is positive (meaning that people save a portion of their income rather than spend all of it), then consumption spending will still increase with disposable income, but at a slower pace than if the MPS were zero or negative. Therefore, consumption spending will not rise as much as disposable income when the MPS is positive.

As Disposable Income Increases, Consumption Spending Will Rise, but It