Assume that consumers in a nation reduce their marginal propensity to save from 0.25 to 0.2 though their personal incomes initially do not change. How will this change in MPS affect the economy

Since the multiplier is now higher than before, this change in MPS will therefore make the real gross domestic product (GDP) to increase.

Explanation:

Old marginal propensity to save = 0.25

Old marginal propensity to consume = 1 - 0.25 = 0.75

Old multiplier = 1 / Old marginal propensity to save = 1 / 0.25 = 4

New marginal propensity to save = 0.20

New marginal propensity to consume = 1 - 0.20 = 0.80

New multiplier = 1 / New marginal propensity to save = 1 / 0.20 = 5

Change in multiplier = New multiplier - Old multiplier = 5 - 4 = 1

Therefore, the decrease in marginal propensity to save (MPS) will increase marginal propensity to consume (MPC) form 0.75 to 0.80 and the multiplier from 4 to 5.

Since the multiplier is now higher than before, this change in MPS will therefore make the real gross domestic product (GDP) to increase.

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: