All right. So let's learn a detail here about the marginal propensity to consume and to save. So recall that when we talked about disposable income, we said that whenever we have disposable income, wherever we're either going to use it for consumption or saving, right? It's going to be one or the other here. So it follows that any increase in disposable income, if we have extra disposable income just like we saw, it's either going to be consumed or saved, right? Any extra money we have, it's either going to be consumed or saved and that's going to depend on that marginal propensity of whether how much of that disposable income you want to consume or save. So what follows here, what we see is that the disposable income equals the consumption or savings, right? Because any disposable income we're either going to consume it or save it so that means any change in disposable income and I'll do change in I'm going to say Y for disposable income because we've been using Y for income in other videos, so change in Y is going to equal the change in consumption plus the change in savings, right? If we have an extra dollar of disposable income, well it's either going to increase our consumption or increase our savings. So they're going to stay equal there.
So now what I want to do is I want to take this and I want to divide it by the change in Y. So notice, divide by the change in Y, if we do that to everything here which we can do thanks to the rules of algebra. You're just going to have to trust me if you don't remember that one. We can divide everything by the change in Y and what does that leave us with? Notice, change in Y divided by change in Y, what does that equal? Anything divided by itself, well that's going to equal 1, right? dY/dY=1 and what does change in consumption over change in disposable income? Look back on the previous page when we defined marginal propensity to consume right? The change in consumption divided by the change in income, disposable income, well, that's your marginal propensity to consume plus your marginal propensity to save. Okay? So that's what if the marginal propensity to consume plus the marginal propensity to save, they're always going to equal 1 and that's because this whole identity of whenever we have extra income, well it's going to either be consumed or saved, okay? So it's either going to go towards the marginal propensity to consume or the marginal propensity to save there. Okay? So sometimes they might give you, let's say in a problem, they might tell you oh the marginal propensity to consume is 0.6. Well, you can already infer that the marginal propensity to save is going to be the other 0.4, right? Because they have to equal out to 1.
All right, let's pause here and let's talk about the consumption function as the equation of a line, all right? Let's do that in the next video.