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Alice's disposable income increases by $1,000, and she spends $600 of it. Assuming no taxes, Alice's: marginal propensity to save is 0.4 and she saves $400. marginal propensity to save is 0.4 and she saves $600. MPC is 0.4 and she saves $400. MPC is 0.6 and she consumes $400.

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Answer:

a). The marginal propensity to save is 0.4 and she saves $400

b). The marginal propensity to consume is 0.6 and she consumes $600

Explanation:

The marginal propensity to save can be expressed as;

Marginal propensity to save=change in saving/change in income

where;

change in saving=total income-expenditure

change in saving=(1,000-600)=$400

change in income=$1,000

replacing;

Marginal propensity to save=400/1,000=0.4

The marginal propensity to save=0.4, and she saves $400

The marginal propensity to save is 0.4 and she saves $400

The marginal propensity to consume

Marginal propensity to consume=expenditure/change in income

where;

Expenditure=$600

Change in income=$1,000

replacing;

Marginal propensity to consume=600/1,000=0.6

The marginal propensity to consume is 0.6 and she consumes $600

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