Question

(1) ​A given change in disposable income would have the greatest effect on saving with which of the following marginal propensities to consume?

Group of answer choices

​0.4

​0.1

​0.8

​0.2

(2)

​If Pat's income increased from $250,000 to $500,000 and his consumption increased from $200,000 to $400,000, what was his marginal propensity to save?

Group of answer choices

​0.4

​0.6

​0.8

​0.2

(3)

If consumers spend _____ of a change in their disposable income, then a tax increase of $100 would lower saving by $40.

Group of answer choices

20 percent

40 percent

60 percent

80 percent

70 percent

（4）

​An increase in transfer payments or a decrease in taxes would ____ disposable income of households and thus ____ in consumption purchases.

Group of answer choices

​increase; increase.

​increase; decrease.

​decrease; increase.

​decrease; decrease.

Answer 1

Answer 1 : 0.1

MPS = 1-MPC

Hence when MPC is lowest MPS would be highest the greatest effect on saving.

Thus, as MPC = 0.1.

MPS =(1-0.1)

MPS=0.9

Answer 2: MPS = 0.2

marginal propensity to consume is equal to ΔC / ΔY

MPC =(400000-200000) / (500000-250000)

MPC = 2/2.5

MPC= 0.8

MPS = 1-MPC

MPS = 1-0.8

MPS = 0.2

Answer 3: 60 %

tax increase of $100 = change in income

MPS = 40/100

MPS = 0.4

MPC = 1- MPS

MPC = 1- 0.4

MPC= 0.6

Answer 4 : Increase , increase