Asked by Scarlet Melliz on May 09, 2024
Verified
How much is the marginal propensity to consume when disposable income rises from $600 billion to $800 billion?
A) .5
B) .65
C) .75
D) .85
E) Cannot be determined
Marginal Propensity
The ratio of the change in an economic variable, such as consumption or saving, to the change in another, typically income.
Disposable Income
The net financial position of households for spending and saving, after accounting for income taxes.
Consumption
Consumption encompasses the acquisition and use of goods and services by households to satisfy their needs and wants.
- Familiarize oneself with the ideas surrounding the marginal propensity to save (MPS) and consume (MPC).
Verified Answer
DC
Dhrumik ChaudhariMay 14, 2024
Final Answer :
A
Explanation :
The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in disposable income. From $600 billion to $800 billion, consumption rises from $500 billion to $600 billion, a change of $100 billion, while income rises by $200 billion. Thus, MPC = $100 billion / $200 billion = 0.5.
Learning Objectives
- Familiarize oneself with the ideas surrounding the marginal propensity to save (MPS) and consume (MPC).