Define and explain how we calculate the marginal propensity to ...

[c0205847]

Define and explain how we calculate the marginal propensity to consume and the marginal propensity to save.
 
  What will be an ideal response?

Question 2

Refer to Figure 7-2. Marginal private benefit is represented by which curve?
 
  A) D2
  B) Supply
  C) D1
  D) All of the above represent marginal private benefit.

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Answer to Question 1

The marginal propensity to consume is the proportion of an increase in disposable income that is consumed. In terms of a formula, the marginal propensity to consume, or MPC, can be calculated as C/YD, where  means change in. The marginal propensity to save is the proportion of an increase in disposable income that is saved. In terms of a formula, the marginal propensity to save, or MPS, can be calculated as S/YD.

Answer to Question 2

C

[c0205847]

TYSM

[olderstudent]

Excellent