The proportion of an increase in GDP or national income that is spent upon purchasing domestic output (since we have assumed closed economy) is called economy’s marginal propensity to spend, which is denoted by the alphabet z. Thus,
z = Δ AE / ΔY
The marginal propensity to spend is more than zero less than one. The marginal propensity to spend determines the slope of the aggregate expenditure curve.
As z denotes marginal propensity to spend, (1-z) shows the marginal propensity ‘not to spend’ and thus shows the fraction of increment in national income not spent on domestic output. Thus, if z= 0.8 then 1-z = 0.2.
