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 first need to determine the change in disposable income and the change in consumption expenditure.

1. Change in Disposable Income (ΔDI):

   • Initial DI = R30,000
   • New DI = R40,000
   • ΔDI = R40,000 - R30,000 = R10,000

2. Change in Consumption Expenditure (ΔC):

   • Initial C = R12,000
   • New C = R18,000
   • ΔC = R18,000 - R12,000 = R6,000

3. Now, calculate the change in savings (ΔS):

   • ΔS = ΔDI - ΔC
   • ΔS = R10,000 - R6,000 = R4,000

4. Now, calculate the MPS: \[ \text{MPS} = \frac{\Delta S}{\Delta DI} = \frac{4,000}{10,000} = 0.4 \]

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