Question

An economy is in equilibrium. From the following data. calculate the marginal propensity to save :
(a) Income $=10,000$
(b) Autonomous consumption $=500$
(c) Consumption expenditure $=8,000$

Answer 1

Given

Income $=10,000$

Autonomous consumption $\left(\overline{C}\right)=500$

Consumption expenditure $\left(C\right)=8,000$

we know,

$C=\overline{C}=CY$

So, $8000=500+c(10,000)$

hence $C=0.75$

Now we know that $MPS=1-MPC$

or $s=1-C$

$s=1-0.75$

$s=0.25$

hence, the marginal propensity to consume to save is $0.25$.