If a household's income falls from $26,000 to $24,000 and its saving falls from $1,000 to $500,then its _____.

A) marginal propensity to consume is 0.98
B) marginal propensity to consume is 1.33
C) marginal propensity to consume is 0.25
D) marginal propensity to save is 0.02
E) marginal propensity to save is 0.25

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Jeenat Jassal · Accepted Answer

Final Answer : E, Explanation :  We can calculate the household's marginal propensity to save (MPS) by finding the change in saving divided by the change in income:MPS = (final saving - initial saving) / (final income - initial income)MPS = ($500 - $1,000) / ($24,000 - $26,000)MPS = -$500 / -$2,000MPS = 0.25Therefore, the correct answer is E) marginal propensity to save is 0.25. The other choices are incorrect based on the given information.

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