If the marginal propensity to consume for an economy is 0.8, then the marginal propensity to save for the economy is _____. Assuming that there are no leakages except savings, the spending multiplier for the economy is:
A) 0.5; 5.
B) 5; 0.5.
C) 0.2; 5.
D) 5; 0.2.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is 1 minus the marginal propensity to consume (MPC), so if MPC is 0.8, MPS is 0.2. The spending multiplier is 1 divided by (1 - MPC), which equals 5 when MPC is 0.8.

If the Marginal Propensity to Consume for an Economy Is