When income is $200 billion, consumption spending is $175 billion. When income is $220 billion, consumption spending is $189 billion. What is the marginal propensity to save?
A) 2
B) .3
C) .7
D) 1.4

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is calculated as the change in saving divided by the change in income. From the given data, when income increases from $200 billion to $220 billion (a change of $20 billion), consumption spending increases from $175 billion to $189 billion (a change of $14 billion). The change in saving is the difference between the change in income and the change in consumption, which is $20 billion - $14 billion = $6 billion. Therefore, MPS = $6 billion / $20 billion = 0.3.

When Income Is $200 Billion, Consumption Spending Is $175 Billion