Question

In light of the above discussion, how is a greater degree of habit persistence in consumption likely to affect the marginal propensity to save? Explain your reasoning.

Short answer

The proportion of a rise in revenue that is saved rather than spent on consumption is known as marginal propensity to save. The $MPS$ fluctuates according on one's income level.$MPS$ is more common among those with greater earnings.

Step-by-step solution

Marginal Prosperity to Consume.

The marginal propensity to consume is defined in economics as the proportion of an aggregate increase in pay that a consumer spends on goods and services rather than conserving it.

Consumption habit development.

A condition connecting the strength of habits to the evolution of consumption through time is implied by the habit formation model. When food is used to assess the condition. Information from the Panel Survey on Income Dynamics on consumption.