If the consumption function is defined as C = 7,250 + 0.8Y, what is the marginal propensity to save?
A)0.2
B)0.8
C)5.8
D)7.25
E)$1,425

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is the complement of the marginal propensity to consume (MPC). Given the consumption function C = 7,250 + 0.8Y, the MPC is 0.8, indicating that for every additional unit of income, consumption increases by 0.8 units. Therefore, the MPS = 1 - MPC = 1 - 0.8 = 0.2.

If the Consumption Function Is Defined as C = 7,250