Suppose an individual's marginal propensity to save is 0.8. If his income increases by £400, by how much will his savings increase?
A) £32
B) £80
C) £8
D) £320

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the fraction of an increase in income that is saved. If the MPS is 0.8, it means 80% of any increase in income will be saved. Therefore, if income increases by £400, the savings will increase by 0.8 * £400 = £320.

Suppose an Individual's Marginal Propensity to Save Is 0