If disposable income increases by $50 billion and there is an MPS of 0.20, the increase in saving will be

Question

Multiple Choice
$20 billion.
$50 billion.
$100 billion.
$10 billion.

Answer 1

To calculate the increase in saving when disposable income increases by $50 billion and the marginal propensity to save (MPS) is 0.20, we use the formula:

\[ \text{Increase in Saving} = \text{Increase in Disposable Income} \times \text{MPS} \]

Substituting the given values:

\[ \text{Increase in Saving} = 50 \text{ billion} \times 0.20 = 10 \text{ billion} \]

Therefore, the increase in saving will be $10 billion.