If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption?
A) $1,885
B) $5,655
C) $10,053
D) $30,160

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the portion of each additional dollar earned that is saved. In this case, MPS = 0.25. Therefore, the marginal propensity to consume (MPC) is 1 - MPS = 1 - 0.25 = 0.75. 
The increase in consumption (ΔC) can be calculated as follows: 
ΔC = MPC x ΔY 
where ΔY is the increase in income. 
ΔC = 0.75 x $7,540 
ΔC = $5,655

If the Marginal Propensity to Save Is 0