Suppose the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14.If the net tax rate is 0.1,then what is the marginal propensity to spend in this economy?
A)0.30
B)0.40
C)0.46
D)0.50
E)0.60

Question

Quizplus · Accepted Answer

Marginal Propensity to Spend (MPS) = Marginal Propensity to Consume (MPC) + Marginal Propensity to Import (MPI) - Net Tax Rate (NTR)
MPS = 0.6 + 0.14 - 0.1
MPS = 0.64
Therefore, the MPS in this economy is 0.64, which is closest to choice B (0.40).

Suppose the Marginal Propensity to Consume Out of Disposable Income