Suppose disposable income for an entire economy rises from $400 billion to $440 billion and desired saving rises from $50 billion to $60 billion.We can conclude that the marginal propensity to save for this economy is
A)0.10.
B)0.20.
C)0.25.
D)0.75.
E)1.0.

Question

Quizplus · Accepted Answer

The marginal propensity to save is the change in desired saving divided by the change in disposable income. In this case, the change in desired saving is $60 billion - $50 billion = $10 billion, and the change in disposable income is $440 billion - $400 billion = $40 billion. Therefore, the marginal propensity to save is $10 billion / $40 billion = 0.25.

Suppose Disposable Income for an Entire Economy Rises from $400