3. BLANK: Consumption-saving/ Cons.+sav./sav.-cons 4. Blank: MPC+MPS/MPC-MPS/MPS

Question

3. BLANK: Consumption-saving/ Cons.+sav./sav.-cons

4. Blank: MPC+MPS/MPC-MPS/MPS-MPC

3. Consumption and saving Suppose Hilary gets a sales bonus at her place of work that gives her an extra $700 of disposable income. She chooses to spend $560 and save the remaining $140 From this, you can tell that Hilary's marginal propensity to consume (MPC) isand her marginal propensity to save (MPS) is 0.80 Mathematically, it must always be true that: 0.20 0.14 Disposable Income = 0.56 Therefore, it must also be true that:

Explanation / Answer

Solution:

Suppose Hilary gets a sale bonus at her place of work that gives her an extra $700 of diposable income. She chooses to spend $560 and save the remaining $140.

From this, you can tell that Hilary's marginal prospenity to consume (MPC) is 0.80 and her marginal prospenity to save (MPS) is 0.20

Mathematically, it must always be true that:

Disposable income= Cons.+sav

Therefore, it must also be true that

1 = MPC+MPS

Working:

MPC = 560/700 = 0.80

MPS = 140/700 = 0.20

Formula is Disposable income = Saving + Consumption; and in current scenario $700 = $560+$140

MPC+MPS = 1; and in current scenario 0.80 + 0.20 = 1

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