Scenario 10.2 A hypothetical open economy has a marginal propensity to import (MPI)equal to 0.2 and a marginal propensity to consume equal to 0.7.Assume that the economy is initially in equilibrium.
Refer to Scenario 10.2.What is the marginal propensity to save of this economy?

Question

Quizplus · Accepted Answer

We know that the marginal propensity to consume (MPC) + marginal propensity to save (MPS) = 1. Thus, MPS = 1 - MPC. In this scenario, MPC = 0.7, therefore MPS = 1 - 0.7 = 0.3. Marginal propensity to import (MPI) is not relevant for this calculation.