Let C = 80 + 0.6y and I = 40. The value of the MPS is

Question

Quizplus · Accepted Answer

We know that MPS (Marginal propensity to Save) is the change in savings divided by the change in income.

Here, the consumption function is given as C = 80 + 0.6y and the investment function is given as I = 40.

To find the MPS, we need to start with the savings function which is given as:

S = Y - C - I

Substituting the given values, we get:

S = Y - (80 + 0.6Y) - 40
S = 0.4Y - 120

Now we can find the MPS by taking the derivative of the savings function with respect to income:

MPS = dS/dY
MPS = 0.4

Therefore, the value of MPS is 0.4.

Hence, the correct answer is B.