 Business
25 February, 21:54

# Suppose that disposable income, consumption, and saving in some country are \$200 billion, \$150 billion, and \$50 billion, respectively. Next, assume that disposable income increases by \$20 billion, consumption rises by \$18 billion, and saving goes up by \$2 billion. What is the economy's MPC? Its MPS? What was the APC before the increase in disposable income? After the increase?

+3
1. 25 February, 23:32
0

The computation is shown below:

Marginal Propensity to Consume (MPC) = change in consumption change in disposable income

= \$18 billion : \$20 billion

= 0.9

Marginal Propensity to Save (MPS) = change in saving : change in disposable income

= \$2 billion : \$20 billion

= 0.10

b) APC before the increase in disposable income

The average propensity to consume (APC) = Consumption (C) : Disposable income (Y)

= \$150 billion : \$200 billion

= 0.75

For After the increase in the disposable income, first we have to determine the new disposable income and the new consumption which is

New disposable income is

= \$200 billion + \$20 billion

= \$220 billion

And,

New consumption is

= \$150 billion + \$18 billion

= \$168 billion

Now

APC = new consumption : new disposable income

= \$168 billion : \$220 billion

= 0.76

We simply applied the above formulas