Suppose disposable income increases by $ 2,000. As a result, consumption increases by $ 1,500. Answer the questions based on this information. Where appropriate, enter your answer as a decimal rather than as a percentage. The increase in savings resulting directly from this change in income is:
The marginal propensity to save (MPS) is:

Increase in Savings = $500

Marginal Propensity to Consume = 0.25

Explanation:

The increase in savings resulting directly from this change in income is $500, because disposable income has increased by $2,000 of which $1,500 have been spent on consumption, setting aside the remaining $500 for saving purposes.

To find the marginal propensity to save (MPS) we use this formula:

Marginal Propensity to Save (MPS) = Change in Savings / Change in Income

                                                          = 500 / 2,000

                                                          = 0.25