Suppose that when disposable income rises from $5.2 trillion to $6.0 trillion, consumption rises from $5.0 trillion to $5.6 trillion. What is the marginal propensity to consume?
To find the marginal propensity to consume (MPC), you need to calculate the change in consumption divided by the change in disposable income.
The change in consumption is the final consumption value minus the initial consumption value.
ΔC = $5.6 trillion - $5.0 trillion = $0.6 trillion
The change in disposable income is the final income value minus the initial income value.
ΔY = $6.0 trillion - $5.2 trillion = $0.8 trillion
Now, you can calculate the marginal propensity to consume (MPC) using the formula:
MPC = ΔC / ΔY
MPC = $0.6 trillion / $0.8 trillion
Therefore, the marginal propensity to consume is 0.75 or 75%.
To calculate the marginal propensity to consume, we need to find the change in consumption and change in disposable income.
Change in consumption (ΔC) = $5.6 trillion - $5.0 trillion = $0.6 trillion
Change in disposable income (ΔY) = $6.0 trillion - $5.2 trillion = $0.8 trillion
Now we can use the formula to calculate the marginal propensity to consume:
Marginal Propensity to Consume (MPC) = ΔC / ΔY
Substituting the values:
MPC = $0.6 trillion / $0.8 trillion
Simplifying:
MPC = 0.75
Therefore, the marginal propensity to consume is 0.75.