Question

Suppose Megan gets a sales bonus at her place of work that gives her an extra $400 of disposable income. She chooses to spend $300 and save the remaining $100. From this, you can tell that Megan's marginal propensity to consume (MPC) is ________, and her marginal propensity to save (MPS) is ________.

Answer 1

0.75, 0.25

Step-by-step explanation:

With an increase in disposable income marginal propensity to consume increase. Similarly, with an increase in disposable income marginal propensity to save increases. Marginal propensity to save is the amount of money saved or kept after a fraction increase in overall disposable income.

MPC = 300/400=0.75

MPS = 100/400=0.25

Marginal propensity to consume is 0.75

Marginal propensity to save is 0.25