3. Consumption and saving Suppose Deborah gets a sales bonus at her place of work that gives her an extra $600 of disposable income. She chooses to spen remaining $120. From this, you can tell that Deborah's marginal propensity to consume (MPC) is 0.80 J , and her marginal propensity to save ( Poi n Explanation: Clo The marginal propensity to consume is the fraction of additional income that households devote to consumption. In this case, to devote $480 of her $600 bonus to consumption. Since $480 is 80% of $600, Deborah's MPC is 0.80. The marginal propensity to save is the fraction of additional income that households devote to saving. In this case, Deborah ch $120 of her $600 bonus. Since $120 is 20% of $600, Deborah's MP5 is 0.20. Mathematically, it must atways be true that: Disposable Income ' Consumption + Saving J Po'm Therefore, it must also be true that: 1 - MPC + MP5 J Po'm Explanation: Clo Disposable income is equal to personal income minus personal taxes. By denition, all disposable income must go to either con saving. Therefore, disposable income must be equal to consumption plus saving. What is true of income in general is also true of additional income. That is, each additional dollar of disposable income that De can be divided into the fraction of each additional dollar that Deborah saves (i.e., her MPS) plus the fraction of each additional consumes (i.e., her MPC). Mathematically, this means that MPC + MP5 must be equal to 1. You can see that this is true for De since you previously calculated that her MPC is 0.80 and her MP5 is 0.20, you can see that l= 0.80 + 0.20