If the MPC is 0.8 and disposable income is $200, thenMultiple Choicesaving will be $20.saving will be $40.consumption and saving cannot be determined from the information given.personal consumption expenditures must be $160.
Question
If the MPC is 0.8 and disposable income is 20.saving will be 160.
Solution 1
The Marginal Propensity to Consume (MPC) is the increase in consumer spending due to an increase in income. If the MPC is 0.8, this means that for every additional dollar of disposable income, consumption will increase by 80 cents.
Given that disposable income is $200, we can calculate consumption as follows:
Consumption = MPC * Disposable income Consumption = 0.8 * 160
The remaining income, if not consumed, is saved. So, we can calculate savings as follows:
Savings = Disposable income - Consumption Savings = 160 Savings = $40
So, the correct answer is: saving will be $40.
Solution 2
The Marginal Propensity to Consume (MPC) is the increase in consumer spending due to an increase in income. If the MPC is 0.8, this means that for every additional dollar of disposable income, consumption will increase by 80 cents.
Given that disposable income is $200, we can calculate consumption as follows:
Consumption = MPC * Disposable income Consumption = 0.8 * 160
The remaining income, if not consumed, is saved. So, we can calculate savings as follows:
Savings = Disposable income - Consumption Savings = 160 Savings = $40
So, the correct answer is: saving will be $40.
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