Which of the following statements must be true in the simple macro model (with a closed economy and no government)?
A)APC increases as income rises.
B)APS decreases as income rises.
C)MPS and MPC are both negative.
D)MPC is negative below a certain level of income.
E)The sum of MPC and MPS is one.

Question

Quizplus · Accepted Answer

The simple macro model assumes that all income is either consumed or saved, therefore the sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) must equal one. None of the other statements are necessarily true in the model.

Which of the Following Statements Must Be True in the Simple