What are the marginal propensity to consume (MPC) and the ...

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What are the marginal propensity to consume (MPC) and the marginal propensity to save (MPS)? How is the MPC related to the consumption function?

Question 2

Are we passing the national debt burden on to our children?

[Pamela.irrgang@yahoo.com]

Answer to Question 1

The marginal propensity to consume is the change in consumption divided by the change in disposable income. The marginal propensity to save is the change in saving divided by the change in disposable income. The MPC measures the slope of the consumption function and is constant along a linear consumption function.

Answer to Question 2

One side of this argument is that the debt is mostly internal, so financing the debt only involves exchanging old bonds for new bonds among U.S. citizens. The burden of the debt falls only on the current generation when the trade-off between public-sector goods and private-sector goods along the production possibilities curve occurs. The counter-argument is that there is a sizable external debt that transfers purchasing power to foreigners.

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TYSM

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Gracias!