Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $13,000. What is the marginal propensity to save?
A) 0.2
B) 0.4
C) 0.6
D) 0.8

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is calculated as the change in savings divided by the change in income. Here, the change in income is $5,000 ($15,000 - $10,000) and the change in consumption is $4,000 ($13,000 - $9,000). Therefore, the change in savings is $1,000 ($5,000 - $4,000). MPS = $1,000 / $5,000 = 0.2.

Suppose When Disposable Personal Income Increases from $10,000 to $15,000