Answer to Question #237263 in Macroeconomics for Given Economy

Question

 In a given economy, consumption increases by $2.5 trillion following a $4 trillion increase in disposable income. What is the marginal propensity to save in that economy?

0.375

2.67

1.5

0.625

Answer 1

$MPS = \frac{ΔS}{ΔY}$

ΔS -->>change in savings

ΔY--->> change in income.

$ΔS = 4-2.5 = 1.5$ $ trillion

$MPS = \frac{1.5}{4}$ $= 0.375$