-Refer to Exhibit 10-9.What is the value of the marginal propensity to consume (MPC)that would correctly fill in blank (C)and the marginal propensity to save (MPS)that would correctly fill in blank (D)?
A) 0.90; 0.10
B) 0.10; 10
C) 0.90; 9
D) 0.01; 100

Question

-Refer to Exhibit 10-9.What is the value of the marginal propensity to consume (MPC)that would correctly fill in blank (C)and the marginal propensity to save (MPS)that would correctly fill in blank (D)?
A) 0.90; 0.10 
B) 0.10; 10 
C) 0.90; 9 
D) 0.01; 100

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of an additional dollar of disposable income that is spent on consumption. If the MPC is 0.90, it means that for every additional dollar earned, 90 cents are spent and 10 cents are saved, which implies the marginal propensity to save (MPS) is 0.10. This relationship holds because MPC + MPS = 1.