For an economy, savings function is S = -50 +0.5 Y. Then what will be the value of MPC?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: 0.5
To find the MPC, we first need to understand the Marginal Propensity to Save (MPS), which is the coefficient of Y in the savings function.
In this case, the MPS is 0.5.
Since MPC and MPS are complementary and their sum is always 1, we can find the MPC as follows:
MPC=1−MPS
MPC = 1 -0. 50
= 0.50