Question

Gary's autonomous consumption is $12,000 and his disposable income is $84,000. If Gary consumes $75,000 worth of goods, what is his Marginal Propensity to Save?

Select one:

a. .10

b. .15

c. .20

d. .25

e. .40

Answer 1

The consumer spending can be calculated using the following formula

C = A + MD

Where, C - consumer spending

A - autonomous consumption

M - marginal propensity to consume

D - disposable income

$ 75,000 = $ 12,000 + M * $ 84,000

M*$ 84,000 = $ 63,000

M = 0.75

Thus, MPC = 0.75

As we know MPS + MPC = 1

MPS + 0.75 = 1

MPS = 0.25

Answer is D. 0.25

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