Suppose a consumption function is given as C = $175 + 0.85Y_D.The marginal propensity to save is A)200. B)0.15. C)-0.15. D)0.85.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the change in saving that results from a change in income. In this consumption function, the coefficient on Y (income) is 0.85, which represents the marginal propensity to consume (MPC). Since MPC + MPS = 1, the MPS in this case must be 0.15. Therefore, the correct answer is B.

Suppose a Consumption Function Is Given as C = $175