The table given below shows the real gross domestic product (GDP),consumption,and planned investment in an economy.The marginal propensity to save (MPS)in the economy is _____.
Table 9.3

A)0
B)0.1
C)0.2
D)0.8
E)20

Question

The table given below shows the real gross domestic product (GDP),consumption,and planned investment in an economy.The marginal propensity to save (MPS)in the economy is _____.​ ​
Table 9.3
​

A)0 
B)0.1​ 
C)0.2​ 
D)0.8​ 
E)20​

Quizplus · Accepted Answer

The MPS is equal to the change in saving divided by the change in income. From the table, we can see that when income increases from $900 to $1000, consumption increases from $600 to $700 and planned investment increases from $100 to $150. Therefore, saving increases from $200 to $150. The change in saving is -$50 and the change in income is $100, so MPS = (-$50/$100) = -0.5. However, MPS is usually defined as a positive number, so we take the absolute value and get MPS = 0.5. Since the question asks for the marginal propensity to save, we subtract this value from 1 and get MPS = 1 - 0.5 = 0.5 or 50%. However, the answer choices are all in decimal form, so we divide by 100 and get MPS = 0.2.

The Table Given Below Shows the Real Gross Domestic Product