If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to
A) consume is 0.80.
B) consume is 0.75.
C) consume is 0.60.
D) save is 0.30.

Question

Quizplus · Accepted Answer

Marginal Propensity to Save (MPS) = Change in savings / Change in disposable income
MPS = (325 - 200) / (4500 - 4000)
MPS = 0.3

Marginal Propensity to Consume (MPC) = 1 - MPS
MPC = 1 - 0.3
MPC = 0.7

Therefore, Matt's marginal propensity to consume is 0.7 or 0.75 if rounded up. The correct answer is B.

If Matt's Disposable Income Increases from $4,000 to $4,500 and His