If the marginal propensity to save is 0.25,then a $10,000 decrease in disposable income will
A)increase consumption by $7,500.
B)increase consumption by $2,500.
C)decrease consumption by $7,500.
D)decrease consumption by $2,500.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is 0.25, meaning 25% of any change in income is saved. Therefore, 75% (1 - 0.25) of the change in income is consumed. A $10,000 decrease in disposable income will decrease consumption by $7,500 (0.75 * $10,000).

If the Marginal Propensity to Save Is 0