Question

If the marginal propensity to save increases, then what would happen to the quantity of savings?

• A. Would increase
• B. Would remain constant
• C. Would decrease
• D. None of these

Hint:

A higher marginal propensity to save means that a greater portion of additional income is saved, which leads to an increase in the quantity of savings.

Answer 1

The Correct Option is A

Step 1: Understanding marginal propensity to save.
The marginal propensity to save (MPS) is the proportion of an additional amount of income that is saved rather than spent. If the MPS increases, it means a higher fraction of any additional income will be saved, leading to an increase in the total savings of the economy.

Step 2: Analyzing the options.
(A) Would increase: Correct. If the MPS increases, it implies that more income is being saved, so the quantity of savings will increase.
(B) Would remain constant: This is incorrect because an increase in MPS leads to a change in the savings rate.
(C) Would decrease: This is incorrect. A higher MPS would result in an increase in savings, not a decrease.
(D) None of these: This is incorrect because the correct answer is (A).

Step 3: Conclusion.
If the marginal propensity to save increases, the quantity of savings would increase. Therefore, the correct answer is (A) Would increase.