When Jack's income increases by $1,000,he spends an additional $850 dollars.This implies that his marginal propensity to save is 0.85.

Question

Quizplus · Accepted Answer

The statement from the question implies that Jack's marginal propensity to consume is 0.85, not his marginal propensity to save. Marginal propensity to consume (MPC) refers to the increase in spending that results from an increase in income, while marginal propensity to save (MPS) refers to the increase in saving that results from an increase in income.

The formula for MPC is: 
MPC = change in consumption / change in income

In this case, we know that when Jack's income increases by $1,000, he spends an additional $850. So: 
MPC = 850 / 1000 
MPC = 0.85

Therefore, the correct answer is B.

When Jack's Income Increases by $1,000,he Spends an Additional $850