Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income
-(Exhibit: Consumption and Disposable Personal Income) The marginal propensity to save is
A) 0.25.
B) 0.50.
C) 0.60.
D) cannot be determined without a savings function.

Question

Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income 
-(Exhibit: Consumption and Disposable Personal Income) The marginal propensity to save is
A) 0.25. 
B) 0.50. 
C) 0.60. 
D) cannot be determined without a savings function.

Quizplus · Accepted Answer

The marginal propensity to save is calculated as the change in savings divided by the change in disposable income. Looking at the exhibit, when disposable income increases from $6 to $8 trillion, consumption spending increases from $7.5 to $9 trillion, which means savings increase from $-1.5 to $-1 trillion. Therefore, the change in savings is $0.5 trillion, and the change in disposable income is $2 trillion. Thus, the marginal propensity to save is 0.5/2 = 0.25.

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