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26 July, 10:09

Suppose that disposable income, consumption, and saving in some country are $400 billion, $350 billion, and $50 billion, respectively. Next, assume that disposable income increases by $40 billion, consumption rises by $28 billion, and saving goes up by $12 billion.

a. What is the economy's MPC?

what is the MPS

b. APC before?

c. APC after?

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Answers (1)
  1. 26 July, 12:02
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    A. MPC = 0.7; MPS = 0.3

    B. APC before = 0.875

    C. APC after = 0.859

    Explanation:

    Given that

    Disposable income = 400 billion

    Consumption = 350 billion

    Savings = 50 billion

    Change in consumption = 28 billion

    Change in disposable income = 40 billion

    Change in savings = 12 billion

    Recall that,

    a. MPC = change in consumption : change in income

    MPC = 28/40

    MPC = 0.7

    MPS = change in savings : change in income

    MPS = 12/40

    MPS = 0.3

    Recall again that

    APC = Consumption : Savings

    b. Before increase

    APC = 350 : 400

    = 0.875

    c. After increase

    Consumption = 350 + 28 = 378

    Disposable income = 400 + 40 = 440

    APC = 378 : 440

    APC = 0.859
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