Answer to Question #251951 in Macroeconomics for Vee

Question

If income increases from R1500 to R2000 and the marginal propensity to consume is 0.8, the new level of consumption will be?

Answer 1

Change in income$=2000-1500=500$

Marginal propensity to consume =0.8

Change in consumption$=$ Marginal propensity to consume multiplied by the change in income.

$= 0.8\times500$

$=400$ .

$=R 400$

The level of consumption will change by R 400.

Since we have not been given the initial level of consumption, we can only know the change in consumption but we cannot find the new level of consumption.