Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the marginal propensity to save?

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the fraction of each additional dollar of income that is saved. In this case, we can find the MPS by taking the derivative of the consumption function with respect to disposable income: MPS = dC/dYD = 0.8. Therefore, the answer is D) 0.2.

Suppose the Consumption Function Is Given by the Equation C