Question

If your disposable personal income increases from R30,000 to R40,000 and your consumption expenditure increases from R12,000 to R18,000, your marginal propensity to save (MPS) is:


0.2


0.4


0.5


0.6

Answer 1

To calculate the marginal propensity to save (MPS), you can use the following formula:

\[
\text{MPS} = \frac{\Delta S}{\Delta Y}
\]

Where:
- \(\Delta S\) is the change in savings,
- \(\Delta Y\) is the change in disposable income.

First, we need to find the change in savings (\(\Delta S\)).

1. Find the initial savings:
\[
\text{Initial Disposable Income} = R30,000
\]
\[
\text{Initial Consumption Expenditure} = R12,000
\]
\[
\text{Initial Savings} = \text{Income} - \text{Consumption} = R30,000 - R12,000 = R18,000
\]

2. Find the new savings:
\[
\text{New Disposable Income} = R40,000
\]
\[
\text{New Consumption Expenditure} = R18,000
\]
\[
\text{New Savings} = \text{Income} - \text{Consumption} = R40,000 - R18,000 = R22,000
\]

3. Calculate the change in savings (\(\Delta S\)):
\[
\Delta S = \text{New Savings} - \text{Initial Savings} = R22,000 - R18,000 = R4,000
\]

4. Calculate the change in disposable income (\(\Delta Y\)):
\[
\Delta Y = \text{New Disposable Income} - \text{Initial Disposable Income} = R40,000 - R30,000 = R10,000
\]

Now we can calculate the MPS:
\[
\text{MPS} = \frac{\Delta S}{\Delta Y} = \frac{R4,000}{R10,000} = 0.4
\]

So, the marginal propensity to save (MPS) is \(0.4\).