Suppose real GDP increases from $13 trillion to $14 trillion and, as a result, consumption expenditure increases from $13 trillion to $13.75 trillion. This result implies that the MPS equals

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Quizplus · Accepted Answer

The Marginal Propensity to Save (MPS) is calculated as the change in saving divided by the change in income. Here, the change in income (real GDP) is $1 trillion ($14 trillion - $13 trillion), and the change in consumption is $0.75 trillion ($13.75 trillion - $13 trillion), implying that the change in saving is $0.25 trillion ($1 trillion - $0.75 trillion). Therefore, MPS = $0.25 trillion / $1 trillion = 0.25.

Suppose Real GDP Increases from $13 Trillion to $14 Trillion