If national income increases from $410 to $430 billion and the marginal propensity to save is 0.25, then savings will increase from $5 to billion.
Question
If national income increases from 430 billion and the marginal propensity to save is 0.25, then savings will increase from $5 to billion.
Solution
The increase in national income is 410 billion = $20 billion.
The marginal propensity to save (MPS) is the increase in savings divided by the increase in income. In this case, the MPS is 0.25.
So, the increase in savings is MPS * increase in income = 0.25 * 5 billion.
Therefore, savings will increase from 5 billion + 10 billion.
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