Question

An economy is in equilibrium. From the following data, calculate the marginal propensity to save:

1) Income = 10,000

2) Autonomous consumption = 500

3) Consumption expenditure = 8,000

Answer 1

`C = barC + cy`

8,000 = 500 + C x 10,000

7,500 = 10,000C

`C = 7500/10000`

C = 0.75

MPC = 0.75

We Know

MPS = 1 - 0.75

∴ MPS = 0.25