Q10) Disposable Income aftertaxes Net Savings $8,000 $100 $9,000 $250 What are t

Question

Q10) Disposable Income aftertaxes                                         Net Savings $8,000                                                                             $100 $9,000                                                                              $250 What are the marginal propensity to consume in the range$8,000 - $9,000 for the family given in the figure? Q10) Disposable Income aftertaxes                                         Net Savings $8,000                                                                             $100 $9,000                                                                              $250 What are the marginal propensity to consume in the range$8,000 - $9,000 for the family given in the figure?

Explanation / Answer

two definitions are needed to solve this problem. First, the marginal propensity to consume = change in consumption /change in income. Second, recall that Consumption + Savings = Disposable Income or. Consumption = Disposable Income-Savings In the above question income increased by $9,000 - $8,000 =$1,000 savings increased by $250 - $100 = $150 therefore consumption increased by $1,000 - $150 =$850 then MPC = 850/1000 = 0.85

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