Question

Suppose disposable income increases by $2,000 . As a result, consumption increases by $1,500 . Answer the questions based on this information. Where appropriate, enter your answer as a decimal rather than as a percentage.

The increase in savings resulting directly from this change in income is:_______
The marginal propensity to save (MPS) is:_________

Answer 1

The increase in savings resulting directly from this change in income is $500

The marginal propensity to save (MPS) is 0.25

Step-by-step explanation:

In order to calculate The increase in savings resulting directly from this change in income we would have to make the following calculation:

increase in savings resulting directly from this change in income= increase in income - increase in consumption

increase in savings resulting directly from this change in income= $2,000 - $1,500

increase in savings resulting directly from this change in income=$500

The Marginal propensity to save = increase in savings/increase in income =

Marginal propensity to save = $500/$2.000

Marginal propensity to save =0.25