Question

An economy is in equilibrium. From the following data, calculate MPS.
(i) Income=10,000
(ii) Autonomous consumption =500
(iii) Consumption expenditure = 8,000

Answer 1

`C=barC+bY`
8000=500+b(10,000)
b(10,000)=7500
`b=(7500)/(10,000)=0.75`
or MPC=0.75
We know that MPC + MPS =1
0.75+MPS=1
MPS=1-0.75