When disposable income increases from $7 trillion to $7.5 trillion, consumption expenditure increase from $6.5 trillion to $6.9 trillion. The MPS is equal to
A) 0.8.
B) 0.75.
C) 0.76.
D) 0.2.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is calculated as the change in savings divided by the change in disposable income. The change in consumption is $0.4 trillion ($6.9 trillion - $6.5 trillion), so the change in savings is $0.1 trillion ($0.5 trillion - $0.4 trillion). The change in disposable income is $0.5 trillion ($7.5 trillion - $7 trillion). Therefore, MPS = $0.1 trillion / $0.5 trillion = 0.2.

When Disposable Income Increases from $7 Trillion to $7