In a simple, closed economy (no government or foreign sector), if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to save is:

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the portion of an increase in disposable income that people save rather than spend on consumption. MPS is calculated as the change in saving divided by the change in disposable income. 
In this case, the increase in disposable income is $1,000, and the increase in consumption is $600. Therefore, the change in saving is $400 ($1,000 - $600). 
MPS = change in saving / change in disposable income = $400 / $1,000 = 0.40. 
Therefore, the answer is D, $0.40.

In a Simple, Closed Economy (No Government or Foreign Sector)