Answer the question on the basis of the following table: The MPC and MPS in the economy:
A) are .4 and .6 respectively.
B) are .6 and .4 respectively.
C) are .8 and .2 respectively.
D) cannot be determined from the information given.

Question

Answer the question on the basis of the following table:  The MPC and MPS in the economy:
A) are .4 and .6 respectively. 
B) are .6 and .4 respectively. 
C) are .8 and .2 respectively. 
D) cannot be determined from the information given.

Quizplus · Accepted Answer

The MPS (Marginal Propensity to Save) is the fraction of additional income that individuals save rather than spend, and the MPC (Marginal Propensity to Consume) is the fraction of additional income that individuals spend rather than save. Looking at the table, we see that when disposable income increases by 100, consumption spending increases by 60 and saving increases by 40. This means that the MPC is 0.6 and the MPS is 0.4, so the correct choice is B.

Answer the Question on the Basis of the Following Table