Question

Supposed the disposable income ranges from 1,110,000 to 1,290,000 and it increases by 30,000 per year. Mpc = .80

When disposable income is 1,000,000 what is the level of consumption is equal to?

Answer 1

a)MPC=80 ,but $MPC=\frac{Change in consumption}{change in disposable income}$

so $Change in consumption= MPC*Change in disposable income$

$=80*[(1000000)-(1290000-1110000) +30000]$

$=63200000 dollars$

but consumption$=a+bY$

Where 'a' is autonomous consumption

b is the MPC

Y is the disposable income

Consumption$=30000+80*1000000$

$=80030000 dollars$

level of consumption$=80030000-63200000$

=$16830000 dollars$