If the consumption function is C = 90 + 0.75y, then the marginal propensity to save is
A) 0.25.
B) 0.75.
C) 67.5.
D) 90.

Question

Quizplus · Accepted Answer

The consumption function tells us how much people will spend at each level of income. The marginal propensity to save (MPS) is the change in saving resulting from a change in income. To calculate MPS, we need to calculate the slope of the consumption function, which is the coefficient of y. In this case, the coefficient of y is 0.75, so the MPS is 1 - 0.75 = 0.25. Therefore, the correct answer is choice A.

If the Consumption Function Is C = 90 + 0