Question

The marginal propensity to save is​ _______.

A.the fraction of a change in disposable income that is saved
B.the percentage of a​ household's income that is not spent on consumption goods and services
C.greater than the slope of the 45degrees line
D.equal to the slope of the 45degrees line

Answer 1

The marginal propensity to save is the fraction of a change in disposable income that is saved, and it complements the marginal propensity to consume, with their sum always equaling 1. Option a.

Step-by-step explanation:

The marginal propensity to save (MPS) is the fraction of a change in disposable income that is saved. It represents the proportion of additional disposable income that households choose to save rather than consume. If the marginal propensity to consume (MPC) is 0.8, this implies that 80% of extra income will go towards consumption, and therefore, the MPS will be 0.2, indicating that 20% of additional income will be saved. Note that the MPC plus the MPS always equals 1, as all disposable income is either consumed or saved.