Identify the marginal propensity to consume, change in saving, and the marginal propensity to save.
Explanation of Solution
Marginal propensity to consume can be calculated as follows:
Savings can be calculated as follows:
Marginal propensity to save can be calculated as follows:
Using Equation-1, the marginal propensity to consume is calculated as follows:
Hence, the marginal propensity to consume is 0.8.
Using Equation-2, the savings is calculated as follows:
Hence, the savings is $20 billion.
Using Equation-3, the marginal propensity to save is calculated as follows:
Hence, the marginal propensity to save is 0.2.
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