Disposable income and consumption data \begin{tabular}{|l|l|l|} \hline \begin{tabular}{l} Income \\ (Y) \end{tabular} & \begin{tabular}{l} Change in \\ Disposable income \end{tabular} & \begin{tabular}{l} Consumption \\ (C) \end{tabular} \\ \hline 0 & 1,000 & 500 \\ \hline 1,000 & 1,000 & 1,400 \\ \hline 2,000 & 1,000 & 2,200 \\ \hline 3,000 & 1,000 & 2,900 \\ \hline 4,000 & 1,000 & 3,500 \\ \hline 5,000 & & 4,000 \\ \hline \end{tabular} In Exhibit 11-1, when disposable income(n)is increased from$0to$1,000to$2,000, the marginal propensity to consume:
Question
Disposable income and consumption data \begin{tabular}{|l|l|l|} \hline \begin{tabular}{l} Income \ (Y) \end{tabular} & \begin{tabular}{l} Change in \ Disposable income \end{tabular} & \begin{tabular}{l} Consumption \ (C) \end{tabular} \ \hline 0 & 1,000 & 500 \ \hline 1,000 & 1,000 & 1,400 \ \hline 2,000 & 1,000 & 2,200 \ \hline 3,000 & 1,000 & 2,900 \ \hline 4,000 & 1,000 & 3,500 \ \hline 5,000 & & 4,000 \ \hline \end{tabular} In Exhibit 11-1, when disposable income(n)is increased from1,000to$2,000, the marginal propensity to consume:
Solution
The marginal propensity to consume (MPC) is calculated by the change in consumption divided by the change in income.
From the table, when income increases from 1,000, consumption increases from 1,400. So, the change in consumption is 500 = 1,000 - 1,000. Therefore, the MPC is 1,000 = 0.9.
Similarly, when income increases from 2,000, consumption increases from 2,200. The change in consumption is 1,400 = 2,000 - 1,000. Therefore, the MPC is 1,000 = 0.8.
So, when disposable income is increased from 1,000 to $2,000, the marginal propensity to consume decreases from 0.9 to 0.8.
Similar Questions
The following table shows the relationship between income and consumption in an economy.Income (Y)(in billions of dollars)Consumption (C) (in billions of dollars)051011201730234029503560417047805390 59100 65Assume that investment (I) is $5 billion, government purchases (G) are $4 billion, and net exports (X) are $2 billion.Construct a table that is analogous to Table 23.2 for this economy. What is the level of income at the point of spending balance?Level of income at the point of spending balance =
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