If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is:
A) 0.2.
B) 0.25.
C) 0.75.
D) There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

The marginal propensity to save is the change in saving divided by the change in income. In this case, saving has increased by $75 billion ($575 billion - $500 billion) and income has increased by $100 billion ($700 billion - $600 billion). Therefore, the marginal propensity to save is $75 billion / $100 billion = 0.75.

If Consumption Increases from $500 Billion to $575 Billion and Income