Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging and other expenses. So far, she has managed to save $20,000. What is her marginal propensity to save (MPS)?
A) Her marginal propensity to save is 0.99.
B) Her marginal propensity to save is 0.90.
C) Her marginal propensity to save is 0.86.
D) Her marginal propensity to save is 0.10.
E) Her marginal propensity to save is 0.01.

Question

Quizplus · Accepted Answer

Marginal propensity to save (MPS) is the proportion of an increase in income that is saved. Linda's income increased by $500 ($3500 - $3000), and she saves 10% of her income, which is $50 ($500 * 0.10). Therefore, her MPS is 0.10, indicating she saves 10% of her additional income.

Linda Earned an Income of $3,000 Per Month, Which Has