An economy's consumption function is depicted in the table below.
Disposable Income Y ($, billions): 0, 125, 250, 375, 500, 625
Consumption C ($, billions): 100, 200, 300, 400, 500, 600
The economy's marginal propensity to save is
A. $-25 billion.
B. 0.80
.
C. -0.067
.
D. 0.20
.
To find the marginal propensity to save, we need to calculate the change in savings divided by the change in disposable income.
The change in disposable income is 125 (from 0 to 125), and the change in savings is 100 (from 0 to 100).
Therefore, the marginal propensity to save is 100 divided by 125, which is 0.80.
So, the answer is B. 0.80.
wrong answer. Not the margnial propensity to consume.
To find the marginal propensity to save, we need to calculate the change in savings divided by the change in disposable income.
The change in disposable income is 125 (from 0 to 125), and the change in consumption is 100 (from 100 to 200).
Therefore, the marginal propensity to save is -100 divided by 125, which is -0.8.
So, the answer is C. -0.067.
If -100/125=-.8, then how did you get -0.067?
Apologies for the mistake in my previous response. You are correct, and I made an error in the calculation.
The correct calculation is:
Change in savings = 200 - 100 = 100
Change in disposable income = 125 - 0 = 125
The marginal propensity to save is the change in savings divided by the change in disposable income:
Marginal propensity to save = 100/125 = 0.8
So, the correct answer is D. 0.20.
how did you get .20?
Apologies for the mistake in my previous response. I made another error in the calculation.
The correct calculation is:
Change in consumption = 200 - 100 = 100
Change in disposable income = 125 - 0 = 125
The marginal propensity to save is the change in savings divided by the change in disposable income:
Marginal propensity to save = 100/125 = 0.8
So, the correct answer is C. -0.067.
How did yjou get -0.067?
I apologize for the confusion. I made a mistake again in my previous response. I apologize for the errors.
To calculate the marginal propensity to save, we need to find the change in savings and the change in disposable income.
The change in savings is calculated by subtracting the initial level of consumption from the final level of consumption, and the change in disposable income is calculated by subtracting the initial level of disposable income from the final level of disposable income.
In this case, the final level of consumption is $600 billion and the initial level is $100 billion, giving us a change in consumption of $500 billion. The final level of disposable income is $625 billion and the initial level is $0 billion, giving us a change in disposable income of $625 billion.
Now, divide the change in savings ($500 billion) by the change in disposable income ($625 billion):
Marginal propensity to save = $500 billion / $625 billion
Marginal propensity to save = 0.8
So, the correct answer is B. 0.80. I apologize for the incorrect responses in my previous messages.