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?
A)100
B)0.8
C)2.0
D)0.2

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the portion of additional income that is saved. Since the marginal propensity to consume (MPC) is 0.8, the MPS is 1 - MPC, which equals 0.2.

Suppose the Consumption Function Is Given by the Equation C