The marginal propensity to consume and the marginal propensity to withdraw are related as follows:
A)MPC - MPW = 1
B)MPC/MPW = 1
C)MPW/MPC = 1
D)MPW - MPC = 1
E)MPC + MPW = 1

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the increase in consumer spending due to a one-unit increase in disposable income. The marginal propensity to withdraw (MPW) is the proportion of additional income that will be withdrawn from the circular flow of income through savings, taxes, and imports. Since consumption, savings, taxes, and imports are the four components of withdrawal, we know that MPC + MPW = 1. Therefore, choice E is the best answer.

The Marginal Propensity to Consume and the Marginal Propensity to Withdraw