Question

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 $14 billion, and saving goes up by $6 billion.What was the APC before the increase in disposable income?

Answer 1

Answer: APC before the increase in disposable income is 0.75.

Explanation:

Given that,

Disposable income = $200 billion

Consumption = $150 billion

Saving = $50 billion

Also given that,

Disposable income increases by $20 billion

consumption rises by $14 billion

Saving goes up by $6 billion

Average propensity to consume is calculated by dividing consumption by income level of an individual.

$APC =\frac{Consumption}{Disposable\ income}$

$APC =\frac{150}{200}$

               = 0.75

Therefore, APC before the increase in disposable income is 0.75.