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 percent

Answer 1

Answer:

Increase in savings resulting directly from the given change in income

= increase in income - increase in consumption  = $2000-$150 = $500

Marginal propensity to save = increase in savings/increase in income = 500/2000 = 0.25

Explanation: