Between 2008 and 2009, real disposable income (in 2009 dollars) declined slightly (by $19 billion), owing to a recession.

Between 2008 and 2009, real disposable income (in 2009 dollars) declined slightly (by $19 billion), owing to a recession. The decline in real consumption expenditures was far larger: $133 billion. Explain why dividing the two does not give a good estimate of the marginal propensity to consume.

Solutions

Expert Solution

ANSWER ::

=> Explanation ::

MPC = Change in consumer Spendig/ Change In Income.

= 133 Billion/19 Billion

= 7

As We Show That There Is Recession In The Market So It Will Decline the Prices Of Goods And Services. As We show that Change In income is lower Than The Change In total Consumption So While Calculating Multiplier MPS = 1 - MPC, So Because Of That Dividing Two Of That Does Not Provide Good Estimate Of The MPC.

Rahul Sunny answered 1 year ago

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