If consumption rises from $500 billion to $575 billion and income rises from $600 billion to $700 billion, the marginal propensity to save is
A) 0.2.
B) 0.25.
C) 0.75.
D) 1.17.

Question

Quizplus · Accepted Answer

Marginal propensity to save (MPS) is the fraction of additional income that is saved. It can be calculated using the following formula:

MPS = change in saving / change in income

Here, the change in income is $100 billion ($600 billion to $700 billion), and the change in consumption is $75 billion ($500 billion to $575 billion).

MPS =  (575 - 500) / (700 - 600)
MPS = 75 / 100
MPS = 0.75

Therefore, the answer is B) 0.25.

If Consumption Rises from $500 Billion to $575 Billion and Income