Suppose a consumption function is given as C = $150 + 0.75Y_D.The marginal propensity to save is A)150. B)0.75. C)0.25. D)-0.75.

Question

Quizplus · Accepted Answer

The marginal propensity to save is the fraction of an increase in income that will be saved, so it is the coefficient on Y in the equation for saving, which is 1 minus the coefficient on Y in the consumption function. In this case, the coefficient on Y in the consumption function is 0.75, so the coefficient on saving, and therefore the marginal propensity to save, is 0.25.

Suppose a Consumption Function Is Given as C = $150