Answer:
0.66
Explanation:
Marginal propensity to consume is the proportion of disposable income that is spent on consumption
Marginal propensity to consume = change in consumption / change in income = C / Y
Gross domestic product (Y) is the sum of all final goods and services produced in an economy within a given period which is usually a year.
In a closed economy, GDP = Consumption + Investment spending + Government Spending
Y = 300 + 0.75(Y - $1,200) + $900 + $1,300
Y = 300 + 0.75Y - $900 + $900 + $1,300
Collect like terms
Y - 0.75Y = $1600
0.25Y = $1600
Y = $6400
Substitute for Y in the consumption function : 300 + 0.75(Y - $1,200)
300 + 0.75($6400 - $1,200)
300 + 0.75($5,200) = $4,200
C = $4200
Marginal propensity to consume = $4,200 / $6400 = 0.66
