Question

​Hector's wealth is​ zero, he expects to work for another 45 years at a constant salary of​ $80,000 and live for another 60 years. If Hector receives a​ $20,000 bonus during his first year of work and he completely smooths consumption over his​ lifetime, his marginal propensity to consume out of a transitory increase in income is
A. $67,500.
B. $75,000.
C. $80,000.
D. $111,111.

Answer 1

His marginal propensity to consume out of a transitory increase in income is $\ 67,500$.

Explanation:

In financial aspects, the minimal penchant to expend (MPC) is a metric that measures actuated utilization, the idea that the expansion in close to home shopper spending (utilization) happens with an increment in discretionary cash flow (pay after expenses and moves).

The extent of extra cash which people spend on utilization is known as penchant to expend. MPC is the extent of extra pay that an individual expends.

For instance, if a family unit procures one additional dollar of discretionary cashflow, and the minor affinity to expend is 0.65, at that point of that dollar, the family unit will burn through 65 pennies and spare 35 pennies. Clearly, the family unit can't spend more than the additional dollar (without getting).  

As indicated by John Maynard Keynes, minimal affinity to devour is short of what one.