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:

Question

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 \(0.4\).