All AP Macroeconomics Resources
Example Questions
Example Question #1 : Tax Policy
If the income level in a given economy increases by $100 and spending increases by $80, the marginal propensity to save in that economy is equal to which of the following?
Possible Answers:
0.5
0.2
0.8
0.75
Correct answer:
0.2
Explanation:
The marginal propensity to consume is calcuated by the change in consumption over the change in income. In this example, the marginal propensity to consume is 80/100 = 0.8. However, the problem asks for the marginal propensity to save and not the marginal propensity to consume.
In any economy, whatever money is not used for consumption is considered savings. Therefore, to find the marginal propensity to save, subtract the marginal propensity to consume from 1. Thus, 1 - 0.8 = 0.2. The marginal propensity to consume in this problem would be 0.2.
Alexander
Certified Tutor
Certified Tutor
University of Virginia-Main Campus, Bachelor in Arts, Political Science and Government. Columbia University in the City of Ne...
All AP Macroeconomics Resources
Popular Subjects
SAT Tutors in San Diego, GRE Tutors in Los Angeles, Algebra Tutors in Philadelphia, Statistics Tutors in Houston, Math Tutors in Boston, Chemistry Tutors in Atlanta, Algebra Tutors in New York City, Computer Science Tutors in New York City, French Tutors in Houston, Physics Tutors in Houston
Popular Courses & Classes
ACT Courses & Classes in Seattle, GMAT Courses & Classes in Washington DC, ISEE Courses & Classes in Los Angeles, LSAT Courses & Classes in Washington DC, GRE Courses & Classes in New York City, Spanish Courses & Classes in San Francisco-Bay Area, ACT Courses & Classes in Washington DC, SAT Courses & Classes in Boston, SAT Courses & Classes in Atlanta, SSAT Courses & Classes in Chicago
Popular Test Prep
ISEE Test Prep in Los Angeles, LSAT Test Prep in Phoenix, SAT Test Prep in Phoenix, ACT Test Prep in Washington DC, MCAT Test Prep in Chicago, MCAT Test Prep in Houston, GRE Test Prep in Philadelphia, SSAT Test Prep in Philadelphia, GMAT Test Prep in Washington DC, SAT Test Prep in Washington DC