If consumption spending changes by $5 trillion when disposable income changes by $8 trillion, the marginal propensity to save is equal to
A) $3 trillion.
B) .625.
C) $13 trillion.
D) .375

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is calculated as the change in saving divided by the change in income. If consumption increases by $5 trillion when income increases by $8 trillion, it means that the remaining $3 trillion (i.e., $8 trillion - $5 trillion) is saved. Therefore, MPS = $3 trillion / $8 trillion = 0.375.

If Consumption Spending Changes by $5 Trillion When Disposable Income