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:

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0.2

0.4

0.5

0.6

Question 65
Question

Answer 1

To calculate the marginal propensity to save (MPS), you first need to determine the changes in disposable personal income and consumption expenditure.

1. Change in disposable personal income (DPI): \[ \Delta DPI = New DPI - Old DPI = R40,000 - R30,000 = R10,000 \]

2. Change in consumption expenditure (CE): \[ \Delta CE = New CE - Old CE = R18,000 - R12,000 = R6,000 \]

3. Change in saving (S): Since savings are the difference between disposable personal income and consumption expenditure, we calculate the change in savings as follows: \[ \Delta S = \Delta DPI - \Delta CE = R10,000 - R6,000 = R4,000 \]

4. Now, calculate the marginal propensity to save (MPS): \[ MPS = \frac{\Delta S}{\Delta DPI} = \frac{R4,000}{R10,000} = 0.4 \]

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