If disposable income rises by $100 billion and personal consumption expenditure rises by $60 billion,what is the marginal propensity to save?
A) 0.60
B) 0.40
C) -0.40
D) -1.50
E) impossible to calculate from these figures

Question

Quizplus · Accepted Answer

The marginal propensity to save is the ratio of the change in savings to the change in disposable income. In this case, the change in disposable income is $100 billion and the change in personal consumption expenditure is $60 billion, so the change in savings must be $40 billion (since disposable income = consumption + saving). Therefore, the marginal propensity to save is 40/100 = 0.40.

If Disposable Income Rises by $100 Billion and Personal Consumption