Question

What will be the marginal propensity to save (MPS) if marginal propensity to consume (MPC) is 0.7?

• A. 0.7
• B. 0.25
• C. 0.3
• D. -0.3

Hint:

MPS and MPC are complementary, meaning that the sum of MPS and MPC always equals 1.

Answer 1

The Correct Option is C

Step 1: Relationship Between MPC and MPS:
The marginal propensity to save (MPS) is the proportion of an additional dollar of income that is saved. The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) must always equal 1, since any additional income is either consumed or saved. The formula is: \[ MPC + MPS = 1 \] Therefore, if \(MPC = 0.7\), we can calculate \(MPS\) as follows: \[ MPS = 1 - MPC = 1 - 0.7 = 0.3 \] Step 2: Conclusion and Answer:
The correct answer is (C) because the marginal propensity to save is 0.3 when the marginal propensity to consume is 0.7.