MPC = 0.80 · MPS = 0.20
Working: MPC = 40 ÷ 50 = 0.80; MPS = 1 − 0.80 = 0.20
Interpretation: Of each extra £1 of income, 80 % is spent and 20 % is saved. Multiplier k = 1 ÷ (1 − MPC) = 5.00.
MPC and the multiplier
MPC is the fraction of extra income spent on consumption. MPS = 1 − MPC is saved. Higher MPC → fewer leakages → larger multiplier. Use the multiplier calculator once you know MPC to find ΔY from an injection.