Question

Suppose disposable income increases by $2,000. As a result, consumption increases by $1,500. Answer the following questions based on this information. Where appropriate, enter your answer as a decimal rather than as a percentage. The increase in savings resulting directly from this change in income is: ___$ The marginal propensity to save (MPS) is: ____What is the marginal propersity to consume?? (MPC)

Answer 1

MPC = 0.75

MPS = 0.25

Step-by-step explanation:

Marginal propensity to consume is the proportion of change in consumption to change income.

MPC = change in consumption/ change in income.

Marginal propensity to save is the proportion of change in savings to change income.

MPS = change in savings / change in income.

MPS + MPC = 1

MPC = $1500 / $2000 = 0.75

MPS = 1 - 0.75 = 0.25

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