Suppose the consumption function is given by the equation C = 100 + 0.8YD, where YD is disposable income. What is the marginal propensity to save?
A) 0.2
B) 0.8
C) 2.0
D) 100

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the complement of the marginal propensity to consume (MPC), which in this equation is 0.8. Therefore, MPS = 1 - MPC = 1 - 0.8 = 0.2.

Suppose the Consumption Function Is Given by the Equation C