Question

The Wong family has a disposable income of $70,000 annually. Currently, the Wong family spends 80% of new disposable income on consumption. Assume that their marginal propensity to consume is 0.8 and that their autonomous consumption spending is equal to $10,000.
What is the amount of the Wong family's annual consumer spending?

Answer 1

Answer:The answer is $330,000

Explanation:

80% of $70,000 = consumption

= $56,000, MPC = 0.8

C = a + by where a = autonomous consumption, b = MPC, The value of output is equal to households disposable income (Y = yd)

C = 56,000 + 0.8yd, consumption spending = 10,000

Y = C + I

Y = 56,000 + 0.8yd + 10,000

Rearrange the equation

Y - 0.8 = 5,600 + 10,000

Factor out variable Y

(1-0.8)Y = 56,000 + 10,000

Simplify

0.2Y = 66,000

Divide both sides by 0.2

0.2Y /0.2 = 66,000/ 0.2

Y = 330,000

Therefore the amount of Wong family annual consumer spending is $330,000

Answer 2

Answer:

Annual consumer spending for the Wong family is = $58.000

Explanation:

Disposable income $70,000

Marginal propensity to consume 0.8

Autonomous consumption spending $10,000.

If the disposable income (the money needed to survive) is $10.000 then the $60.000 left to complete $70.000 will be consumed at a rate of 80% or 0.8 cents per each dollar received. Therefore,

Annual consumer spending = $10.000 + ($60.000*0.8)

Annual consumer spending = $10.000 + $48.000

Annual consumer spending = $58.000