Marginal propensity (1 Viewer)

chrstinee

Member

Could someone help me with this ?

DrDawn

Member
View attachment 32124
Could someone help me with this ?
MPC + MPS = 1

0.75 + MPS = 1 therefore MPS = 0.25

In year 2 their income is: \$40,000 + \$70,000 = \$110,000

So to calculate how much they save in Year 2 do: 0.25 x \$110,000 which is \$27,500

Last edited:

chrstinee

Member
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

Member
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

Member
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

Active Member
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.

Member
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.