(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?
A) -0.5
B) 0.5
C) -1.5
D) 1.5

Question

(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save? 
A) -0.5 
B) 0.5 
C) -1.5 
D) 1.5

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the proportion of an increase in disposable income that is saved rather than spent. It is calculated by dividing the change in saving by the change in disposable income.

MPS = ∆Saving / ∆Disposable income

Here, disposable income increases from $1,000 to $1,200, which is a change of $200. Let's assume that saving increases from $200 to $250, which is a change of $50.

MPS = $50 / $200 = 0.25

Therefore, the value of the marginal propensity to save is 0.25 or 0.5 when expressed as a percentage (25%).

The correct answer is B) 0.5.

(Table) When Disposable Income Increases from $1,000 to $1,200, What