How much is the marginal propensity to save when disposable income rises from $400 billion to $600 billion?

A) .25
B) .5
C) .75
D) 1.0
E) Cannot be determined

Question

How much is the marginal propensity to save when disposable income rises from $400 billion to $600 billion?A) .25B) .5C) .75D) 1.0E) Cannot be determined

Frank Cempa · Accepted Answer

Final Answer : B, Explanation :  The marginal propensity to save (MPS) is calculated as the change in saving divided by the change in disposable income. From $400 billion to $600 billion in disposable income, consumption increases from $400 billion to $500 billion, meaning saving increases by $100 billion ($200 billion to $300 billion in saving). The change in disposable income is $200 billion, so MPS = $100 billion / $200 billion = 0.5.

How much is the marginal propensity to save when disposable income rises from $400 billion to $600 billion?

A) .25
B) .5
C) .75
D) 1.0
E) Cannot be determined

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