If Marginal Propensity to Save Equals 0

question 85

Multiple Choice

If marginal propensity to save equals 0.50,then the marginal propensity to consume is:

• A)1.25.
• B)0.50.
• C)0.70.
• D)1.00.

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Definitions:

Demand Function

A mathematical formula that describes the relationship between the quantity of a good or service demanded and its price, along with other factors like income and the prices of related goods.

Substitution Effect

The effect observed when consumers replace more expensive items with cheaper alternatives due to changes in relative price levels, affecting demand for goods.

Utility Function

Describes how different combinations of goods or services (or different outcomes) provide levels of satisfaction or utility to an individual.

Substitution Effect

The change in consumption patterns due to changes in the relative prices of goods, leading consumers to substitute more expensive items with cheaper alternatives.