If a household's income falls from $26,000 to $24,000 and its savings fall from $1,000 to $500, then its _____
A) marginal propensity to consume is 0.98.
B) marginal propensity to consume is 1.33.
C) marginal propensity to consume is 0.25.
D) marginal propensity to save is 0.02.
E) marginal propensity to save is 0.25.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the change in savings divided by the change in income. In this case, the change in income is $26,000 - $24,000 = $2,000 and the change in savings is $1,000 - $500 = $500. Therefore, MPS= 500/2,000 = 0.25.

If a Household's Income Falls from $26,000 to $24,000 and Its