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25 April, 07:35

April's disposable income increases from $500 to $750 and her savings increases from $100 to $150, then her marginal propensity to

a. save is 0.2.

b. consume is 5.

c. consume is 0.2.

d. save is 5.

e. save is 0.8.

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Answers (1)
  1. 25 April, 09:08
    0
    A) save is 0.2

    Explanation:

    Marginal propensity to save (MPS) is ratio of extra dollar saved from every extra dollar of income (increase in income). MPS is calculated by dividing change in saving by change in income.

    Increase in saving = 50 (150 - 100)

    Increase in income = 250 (750-500)

    MPS: 50 / 250 = 0.2

    Marginal propensity to consume (MPC) is ratio of extra dollar consumed from every extra dollar of income. MPC is calculated by dividing change in consumption by change in income.

    Increase in consumption = (Increased income - increased saving) - (Previous income - previous saving)

    Increase in consumption (750 - 150) - (500-100)

    Increase in consumption = 600 - 400 = 200

    Increase in income = 250 (750 - 500)

    MPC = 0.8

    Thus the correct answer is

    A) MPs is 0.2
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Home » Business » April's disposable income increases from $500 to $750 and her savings increases from $100 to $150, then her marginal propensity to a. save is 0.2. b. consume is 5. c. consume is 0.2. d. save is 5. e. save is 0.8.
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