Question

12. If your disposable income falls from $55,000 to $50,000 and your consumption falls from $40,000 to $38,000, your marginal propensity to save is:

Answer 1

I believe you MPS is now 0.6

Step-by-step explanation:

Answer 2

Marginal Propensity to save=0.6

Step-by-step explanation:

In order to calculate Marginal Propensity of save, we have to find the marginal Propensity to consume.

Marginal Propensity to consume=Consumption Change/Income change

Marginal Propensity to consume=
`(\Delta\ Consumption)/(\Delta\ income)`

Change in Consumption=$40,000-$38,000

Change in Consumption=$2000

Change in income=$55,000-$50,000

Change in income=$5,000

Marginal Propensity to consume=
`(2000)/(5000)`

Marginal Propensity to consume= 0.4

Now,

Marginal Propensity to consume + Marginal Propensity to save=1

0.4 + Marginal Propensity of save=1

Marginal Propensity of save=1-0.4

Marginal Propensity to save=0.6