Consider the following functions:C=200+0.7YWhat is the marginal propensity to consume?
Question
Consider the following functions:C=200+0.7YWhat is the marginal propensity to consume?
Solution 1
The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. In the given function C = 200 + 0.7Y, the MPC is represented by the coefficient of Y, which is 0.7. This means that for every additional dollar of income, consumption will increase by 70 cents.
Solution 2
The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. In the given function C = 200 + 0.7Y, the MPC is represented by the coefficient of Y, which is 0.7. This means that for every additional unit of income, consumption will increase by 0.7 units. So, the marginal propensity to consume is 0.7.
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