Disposable Income Consumption 0 $200 billion $200 billion 300 billion 400 billion 400 billion 600 billion...

Disposable Income	Consumption
0	$200 billion
$200 billion	300 billion
400 billion	400 billion
600 billion	500 billion
800 billion	600 billion

How much is the marginal propensity to consume when disposable income rises from $600 billion to $800 billion?

Select one:

a. 0.65

b. 0.5

c. 0.75

d. 0.85

Solutions

Expert Solution

Answer: b. 0.5

The marginal propensity to consume(MPC) measures the change in consumption(C) for the change in disposable income(Yd).

MPC = C / Yd , where 'C' = change in consumption, 'Yd' = change in disposable income

From the given data, we see that,

When disposable income is $600 billion, the consumption is 500 billion.

When disposable income is $800 billion, the consumption is 600 billion.

The change in disposable income = Yd = $800 billion - $600 billion = $200 billion

The change in consumption = C = $600 billion - $500 billion = $100 billion

MPC = C / Yd = $100 billion / $200 billion

Or, MPC = 1/2

Or, MPC = 0.5

So, the marginal propensity to consume is 0.5.

___________________________________________________________________

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Disposable National income 2000 = $4.5 billion Consumption = $4.0 billion Disposable National income 2007 =...

Disposable National income 2000 = $4.5 billion Consumption = $4.0 billion Disposable National income 2007 = $5.5 billion Consumption = 4.8 billion Given the data above, what is this country’s marginal propensity to consume (MPC)? What is the country’s marginal propensity to save (MPS)? Fred works as an accountant and earns a paycheck of $1000 every week, but $300 are taken out in taxes. Fred’s consumption spending is normally $500. What is Fred’s personal disposable income? Now assume the Federal...

Table 1 Disposable Income (billions $/year) Total Consumption (billions $/year) $ 0 $50 200 210 Calculate...

Table 1 Disposable Income (billions $/year) Total Consumption (billions $/year) $ 0 $50 200 210 Calculate the marginal propensity to consume in Table 1. Find the consumption function consistent with the data in Table 1. At which income level does consumption equal income in Table 1? What is the rate of saving when income equals $1,000 billion in Table 1?

The relationship between consumption and disposable income is such that as Group of answer choices consumption...

The relationship between consumption and disposable income is such that as Group of answer choices consumption rises, disposable income falls disposable income rises, consumption falls disposable income rises, consumption rises disposable income rises, saving falls The federal government’s principal tool in altering consumer spending is Group of answer choices changing corporate taxes changing federal sales taxes changing unemployment insurance benefits changing personal income taxes The difference between disposable income and consumption spending is Group of answer choices transfer payments personal...

1. Balance Sheet 2015 2016 Accounts Receivable $300 $350 Inventory $200 $400 PP&E $400 $400 Income...

1. Balance Sheet 2015 2016 Accounts Receivable $300 $350 Inventory $200 $400 PP&E $400 $400 Income Statement - 2016 Net Sales $,2000 Gross Profit $1,200 Net Income $500 What is Company X’s inventory turnover ratio for 2016? 1.67 2.00 2.67 6.67 2. Company X purchased goods from Company Y at an initial price of $20,000. Additionally, Company Y gave Company X a trade discount of 10% due to the volume of the order. The goods were shipped f.o.b. shipping point...

Suppose consumers' disposable income increased by $341 billion and their spending increased by $299 billion. What...

Suppose consumers' disposable income increased by $341 billion and their spending increased by $299 billion. What was the MPC? Suppose the government increases education spending by $30 billion. If the marginal propensity to consume is 0.90, how much will total spending increase?

3) Independent consumption a)Represents a component of consumption that is independent of the disposable income. b)Decreases...

3) Independent consumption a)Represents a component of consumption that is independent of the disposable income. b)Decreases when consumer wealth goes down. c)Decreases when consumer wealth goes up. d)Represents the minimum level of consumption when disposable income is zero. e) a, b and c. 4) An increase in the general price level a)Decreases consumption by increasing consumer wealth. b)Decreases the real value of the money fixed assets. c)Shifts the consumption function upward. d)a and b. 5)Theoretically, a higher level of interest...

Soybean (bushels per year) Chicken (pounds per year) 500 and 0 400 and 300 200 and...

Soybean (bushels per year) Chicken (pounds per year) 500 and 0 400 and 300 200 and 500 0 and 550 Use the table, which shows a farm’s production possibilities, to work Problems 2 and 3. 2. If the farm uses its resources efficiently, what is the opportunity cost of an increase in chicken production from 300 pounds to 500 pounds a year? Explain your answer. 3. If the farm adopted a new technology, which allows it to use fewer resources...

If MPS is 20% and a person experiences an increase in disposable income for $200. How...

If MPS is 20% and a person experiences an increase in disposable income for $200. How much is being saved? How much is being spent? What is the MPC? MPS=.4. What the government spending multiplier? MPC=.9. What the government spending multiplier? MPS=.5. What the government spending multiplier? MPC=.75. What the tax multiplier? MPS=.1. What the tax multiplier?

Year Cash Flow 0 $0 1 $250 2 $400 3 $500 4 $600 5 $600 What...

Year Cash Flow 0 $0 1 $250 2 $400 3 $500 4 $600 5 $600 What is the present (Year 0) value if the opportunity cost (discount) rate is 10 percent? Add an outflow (or cost) of $1,000 at Year 0. What is the present value (or net present value) of the stream?

State the general relationship between consumption Y and disposable income X in ( a ) exact...

State the general relationship between consumption Y and disposable income X in ( a ) exact linear form and ( b ) stochastic form. ( c ) Why would you expect most observed values of Y not to fall exactly on a straight line?

Subjects