Suppose when disposable income (D) is $1000/month, consumption (C) is $400/month. When disposable income is $2500/month,...
Suppose when disposable income (D) is $1000/month, consumption (C) is $400/month. When disposable income is $2500/month, consumption increases to $700/month. Which of the following equation represents the relationship between consumption and disposable income in this example?
Homework Answers
Marginal Propensity to consume is a measurement indicator which calculates that an increase in personal consumption expenditure is accompanied by an increase in income.
Marginal Propensity to consume is represented as :
MPC = 
MPC = Change in Consumption / Change in Income
MPC = 700 - 400 / 2500 - 1000
= 300 / 1500
= 1/5
or 0.2
So Marginal Propensity to Consume = 0.2
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In an economy, when disposable income increases from $400 to $500, consumption expenditure increases from $420 billion to $500. Calculate the marginal propensity to consume, the change in saving, and the marginal propensity to save. The marginal propensity to consume is 0.80. >>> Answer to 2 decimal places. When disposable income increases from $400 billion to $500 billion, saving increases by $ 20 billion. The marginal propensity to save is 0.20 >>> Answer to 2 decimal places.
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