Answer to Question #134304 in Macroeconomics for lesego

Question

If a household’s income falls from R12 000 to R10 000, and its consumption falls from R9 500 to R8 000, then:
(1) The marginal propensity to consume is ‐0.8.
(2) The marginal propensity to consume is 0.75.
(3) The marginal propensity to consume is 0.2.
(4) The marginal propensity to save is 0.15

Answer 1

MPC = Change in the Consumption over the Change in the Disposable Income

Therefore; Change in the Consumption is R(8000 - 9500) = -R1500

Change in the Disposable Income will be R(10000 - 12000) = -R2000

MPC = -R1500/-R2000

= 0.75

Therefore;

The marginal propensity to consume is 0.75.