If your real disposable income goes up by $1,000 per week, and your real consumption spending goes up by $800 per week, you have an marginal propensity to save of
A)0.2.
B)0.8.
C)1.2.
D)1.0.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the fraction of any additional income that is saved rather than spent on consumption. MPS can be calculated as the change in saving divided by the change in disposable income. In this scenario, the change in disposable income is $1,000 per week and the change in consumption spending is $800 per week. Therefore, the change in saving is $1,000 - $800 = $200 per week.

MPS = change in saving / change in disposable income
MPS = $200 / $1,000
MPS = 0.2

Therefore, the correct answer is A) 0.2. This means that for every additional dollar of disposable income, $0.20 is saved and $0.80 is spent on consumption.

If Your Real Disposable Income Goes Up by $1,000 Per