Between 2015 and 2016 the government reported that disposable income decreased by $400 billion and consumption expenditure decreased by $280 billion. Based on these data, the MPS equals

Question

Quizplus · Accepted Answer

The Marginal Propensity to Save (MPS) is calculated as the change in saving divided by the change in disposable income. If disposable income decreased by $400 billion and consumption expenditure decreased by $280 billion, then saving decreased by $120 billion (since the decrease in income not spent on consumption is saved). Therefore, MPS = -$120 billion / -$400 billion = 0.30.

Between 2015 and 2016 the Government Reported That Disposable Income