You have the following information on personal consumption expenditure

You have the following information on personal consumption expenditures (C) and disposable income (Yd):

Year C Yd
1 300 400
2 500 700

a. Compute the marginal propensity to consume.
b. Compute the amount of savings for years 1 and 2.
c. Compute the marginal propensity to save.

ANSWER

a. MPC = ΔC/ΔYd = 200/300 = 0.667
b. Year 1: S = Yd – C = 400 – 300 = 100
Year 2: S = Yd – C = 700 – 500 = 200
c. MPS = ΔS/ΔYd = 100/300 = 0.333