#551 What is the marginal propensity to consume

What is the marginal propensity to consume - Business Statistics

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Free Chegg Question

Answer the following questions about marginal propensity to consume and the multiplier. First, provide the correct equation and then show your work to arrive at the answer:

What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?

If disposable personal income is 10 and consumption is 12, what is personal savings? What does this mean?

What is the multiplier when the change in the equilibrium level of real GDP in the aggregate expenditures model is 9, and the change in autonomous aggregate expenditures is 3?

What is the multiplier when the marginal propensity to save is 1/3?

What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?

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Free Chegg Answer

What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?

MPC=change in consumption/change in income

Here change in consumption = 7-6=1

Change in income=5-3=2

Hence, MPC=1/2=0.5

If disposable personal income is 10 and consumption is 12, what is personal savings? What does this mean?

Disposable income = Consumption +savings

Thus, if disposable income =10, c=12, then we can find savings

Savings = disposable income –consumption

Savings = 10-12=-2

Savings =-2

What is the multiplier when the change in equilibrium level of real GDP in the aggregate expenditures model is 9, and change in autonomous aggregate expenditures is 3?

Multiplier = 1/1-MPC

MPC=0.5

Thus multiplier = 1/1-0.5

=1/0.5=2

What is the multiplier when the marginal propensity to save is 1/3?

If MPS = 0.33(1/3=0.33), then MPC = 1-0.33 (MPS=MPC=1)

MPC=1-0.33=0.67

Multiplier = 1/1-MPC

                =1/1-0.67

                =1/0.33

                =3.03

Multiplier =3.03

What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?

Multiplier =5

Multiplier=1/1-MPC

Here 5=1/1-MPC

Thus,

1-MPC=1/5=0.2

1-MPC=0.2

MPC=1-0.2=0.8

MPS=0.2