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Marginal propensity (1 Viewer)

chrstinee

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MPC + MPS = 1

0.75 + MPS = 1 therefore MPS = 0.25

In year 2 their income is: $40,000 + $90,000 = $130,000

So to calculate how much they save in Year 2 do: 0.25 x $130,000 which is $32,500
Isnt their income 40,000+ 160,000??
 

DrDawn

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Isnt their income 40,000+ 160,000??
I think I made a mistake, so if they had $160000 at the beginning and consumed $90000, they should have $70000 left over right?

So shouldn't it be $40000 + $70000?
 

chrstinee

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I think I made a mistake, so if they had $160000 at the beginning and consumed $90000, they should have $70000 left over right?

So shouldn't it be $40000 + $70000?
Ohhh I’m not sure tbh I had that question in my test today and I thought I did it right but after looking at my working out it wasn’t correct.
 

notme123

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I think I made a mistake, so if they had $160000 at the beginning and consumed $90000, they should have $70000 left over right?

So shouldn't it be $40000 + $70000?
mps is for every extra dollar earned, not on average. if it was apc youd be correct. instead you do mps=1-.75=.25. mps x 40,000 = 10,000.You add this new saving to the already saved 160,000-90,000 = 70,000 so you get 80000
 

nourished.

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mps is for every extra dollar earned, not on average. if it was apc youd be correct. instead you do mps=1-.75=.25. mps x 40,000 = 10,000.You add this new saving to the already saved 160,000-90,000 = 70,000 so you get 80000
Yep, this is correct.
 

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