Answer the question on the basis of the following table that illustrates the multiplier process. Refer to the given table.The marginal propensity to save is:
A) .5.
B) .25.
C) .2.
D) .1.

Question

Answer the question on the basis of the following table that illustrates the multiplier process.  Refer to the given table.The marginal propensity to save is:
A) .5. 
B) .25. 
C) .2. 
D) .1.

Quizplus · Accepted Answer

The multiplier process table shows that an initial increase in spending of $100 leads to an increase in income of $500. The multiplier in this case is 5 ($500/$100). Since the marginal propensity to save (MPS) is the fraction of additional income that is saved rather than spent, we can calculate it by subtracting the marginal propensity to consume (MPC) from 1. In this case, the MPC is 0.8 (the ratio of the change in consumption to the change in income), so the MPS is 0.2 (1 - 0.8). Therefore, the answer is C) .2.

Answer the Question on the Basis of the Following Table