Suppose that when disposable income increases by $1,000, consumption spending increases by $750. Given this information, we know that the marginal propensity to save (MPS) is
A) 0.25.
B) 0.75.
C) 1.33.
D) 4.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the fraction of an additional dollar of disposable income that is saved. If consumption increases by $750 out of an extra $1,000 of income, the remaining $250 (i.e., $1,000 - $750) is saved. Therefore, MPS = $250 / $1,000 = 0.25.

Suppose That When Disposable Income Increases by $1,000, Consumption Spending