Question

In: Economics

1. Suppose Joey received an additional $7,000 of disposable income and he saves $700 of it....

1. Suppose Joey received an additional $7,000 of disposable income and he saves $700 of it. His MPC is _____.

A. 0.10

B. 0.70

C. 0.90

D. none of the above

2. Suppose a household has total income of $60,000 and pays $15,000 in taxes. If the MPC is 0.8, then how much is the household’s total consumption?

A. $36,000

B. $45,000

C. $48,000

D. none of the above or not enough information

3. Suppose a household has total income of $60,000 and pays $15,000 in taxes. If the MPC is 0.8, then how much is the household’s total saving?

A. $9,000

B. $12,000

C. $24,000

D. none of the above or not enough information

4. Which of the following could be a cause of consumption decreasing?

A. Real income increases.

B. Interest rates increase.

C. Wealth increases.

D. Expected future income increases.

Solutions

Expert Solution

As it has been given that Joey received an additional $7,000 of disposable income and he saves $700 of it.

Consumption=DI-S

=7000-700

=6300

MPC= change in the C/ change in the disposable income

=6300/7000

=0.90
Hence option C is the correct answer.

As it has been given that a household has total income of $60,000 and pays $15,000 in taxes. If the MPC is 0.8,

Disposable income= Y-Taxes

=60,000-15,000

=45,000

Total consumption=MPC* change in the Disposable income

=0.8*45,000

=$36,000

Hence option A is the correct answer.

As it has been given that a household has total income of $60,000 and pays $15,000 in taxes. If the MPC is 0.8,

Disposable income= Y-Taxes

=60,000-15,000

=45,000

Total consumption=MPC* change in the Disposable income

=0.8*45,000

=$36,000

Total saving= DI-Consumption

=45,000-36,000

=$9,000

Hence option A is the correct answer.

When the interest rate increases, the opportunity cost of consumption increases. Therefore the people would like to save more for higher interest rather than consumption. Hence with the interest rate increase, the consumption decreases.

Hence option B is the correct answer.

Rahul Sunny answered 1 year ago

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