Determination of Income and Employment

Marginal propensity to consume (MPC) is the change in consumption per unit change in income. It is denoted by $c$ and given by

$$MPC=\frac{\Delta C}{\Delta Y}=c$$

It is related to marginal propensity to save (MPS) as follows:

$$MPS=\frac{\Delta S}{\Delta Y}=s$$

Since $S=Y-C$,

$$s=\frac{\Delta(Y-C)}{\Delta Y}=\frac{\Delta Y}{\Delta Y}-\frac{\Delta C}{\Delta Y}=1-c$$

So,

$$\boxed{MPS=1-MPC}$$

and therefore

$$\boxed{MPC+MPS=1}$$

Ex ante investment means the amount of investment a producer plans to make during a year. It is the planned addition to stock or capital.

Ex post investment means the investment that actually takes place by the end of the year.

They can be different because actual sales may differ from planned sales. For example, if a producer plans to add goods worth Rs 100 to inventory but unexpected demand forces her to sell goods worth Rs 30 from stock, then actual inventory rises only by Rs 70. So planned investment is Rs 100, but ex post investment is Rs 70.

Thus, ex ante = planned, while ex post = actual.

A parametric shift of a line means a shift in the position of the line caused by a change in one of its parameters, such as the intercept or the slope.

- If the slope decreases, the line swings downward and becomes flatter.
- If the intercept increases, the line shifts upward in parallel.

So, a decrease in slope changes the tilt of the line, while an increase in intercept moves the whole line up without changing its slope.