In a closed private economy, income is $50 billion and consumption is $40 billion.When income rises by 10 percent, consumption rises by 9 percent.The MPS over the relevant income range is

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is calculated as 1 minus the marginal propensity to consume (MPC). MPC is the change in consumption divided by the change in income. Here, MPC = 0.9 (9%/10%), so MPS = 1 - 0.9 = 0.1. The multiplier is 1/MPS = 1/0.28 = 3.57.

In a Closed Private Economy, Income Is $50 Billion and Consumption