In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the
A) slope of the saving schedule is 2.
B) slope of the consumption schedule is 0.8.
C) marginal propensity to consume is 0.2.
D) average propensity to save is 0.2.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption divided by the change in disposable income. Since saving increases by $2 million for every $10 million increase in income, the marginal propensity to save (MPS) is 0.2. Therefore, MPC = 1 - MPS = 0.8, which is the slope of the consumption schedule.

In an Economy, for Every $10 Million Increase in Disposable