Suppose John gets a sales bonus at his place of work that gives him an extra $600 of disposable income

(a.) From the information given, John's MPC is 0.6. The MPC is defined as follows:

• MPC = (change in consumption)/(change in disposable income).

In this case:

• MPC = $360/$600 = 0.6.

(b.) Mathematically, it must always be true that:

• Disposable Income = Consumption + Savings.

Disposable income is total income minus personal taxes. Consumers can do only two different things with their disposable incomes--consume or save. So, the sums of money allocated to those categories must exhaust disposable income.

(c.) Therefore, it must also be true that:

• 1 = MPC + MPS.

As noted above:

• MPC = (change in consumption)/(change in disposable income).

Similarly, the expression for MPS is:

• MPS = (change in savings)/(change in disposable income).

Adding MPC and MPS together gives:

• MPC + MPS = (change in consumption)/change in disposable income) + (change in savings)/change in disposable income) = ((change in consumption) + (change in savings))/(change in disposable income) = (change in disposable income)/(change in disposable income) = 1.