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Suppose that disposable income, consumption, and saving in some country are $200 billion, $150 billion, and $50 billion, respectively. Next, assume that disposable income increases by $20 billion, consumption rises by $14 billion, and saving goes up by $6 billion. a. What is the economy’s MPC?

Respuesta :

Shahzaibfaraz

Answer:

The marginal propensity to consume is 0.7.

Explanation:

The marginal propensity to consume (MPC) is a measure to determine the increase in consumer spending as a result of increase in disposable income. The marginal propensity to consume can be calculated by dividing the change in consumer spending by the change in disposable income.

MPC = change in consumption / change in disposable income

Thus, MPC = 14 / 20  =  0.7 or 70%

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