What is the Marginal Propensity to Save (MPS) in the given consumption function C=400+0.7(Y {Yd})?
The Marginal Propensity to Save (MPS) in the given consumption function is 0.3.
Explanation:
The Marginal Propensity to Save (MPS) is the proportion of additional income that an individual saves rather than consumes. In the given consumption function C=400+0.7(Y {Yd}), the term 0.7 represents the Marginal Propensity to Consume (MPC), which is the proportion of additional income that an individual consumes rather than saves.
To calculate the Marginal Propensity to Save (MPS), we subtract the Marginal Propensity to Consume (MPC) from 1. This is because MPS + MPC = 1, as all additional income is either saved or consumed.
Therefore, the calculation of MPS in this case is as follows:
MPS = 1 - MPC
MPS = 1 - 0.7
MPS = 0.3
So, the Marginal Propensity to Save (MPS) in the given consumption function C=400+0.7(Y {Yd}) is 0.3. This means that for every additional unit of income, individuals in the economy will save 0.3 units and consume 0.7 units.