Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.

-Refer to the above data.The marginal propensity to save:
A) is highest in economy (1).
B) is highest in economy (2).
C) is highest in economy (3).
D) cannot be determined from the data given.

Question

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.
 
-Refer to the above data.The marginal propensity to save:
A) is highest in economy (1). 
B) is highest in economy (2). 
C) is highest in economy (3). 
D) cannot be determined from the data given.

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the fraction of additional income that is saved rather than spent on consumption. It can be calculated as MPS = ΔS/ΔDI, where ΔS is the change in saving and ΔDI is the change in disposable income. In economy (1), when disposable income increases from $300 billion to $400 billion, consumption increases from $400 billion to $500 billion, which means that the change in saving is $-100 billion. Therefore, the MPS is -100/100 = -1. In economy (2), when disposable income increases from $800 billion to $900 billion, consumption increases from $900 billion to $1000 billion, which means that the change in saving is $-100 billion. Therefore, the MPS is -100/100 = -1. In economy (3), when disposable income increases from $200 billion to $300 billion, consumption increases from $100 billion to $200 billion, which means that the change in saving is $100 billion. Therefore, the MPS is 100/100 = 1. Therefore, economy (3) has the highest MPS.

Following Is Consumption Schedules for Three Private Closed Economies