Question

What is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3? If disposable personal income is 10 and consumption is 12, what is personal savings? What does this mean? What is the multiplier when the change in equilibrium level of real GDP in the aggregate expenditures model is 9, and change in autonomous aggregate expenditures is 3? What is the multiplier when the marginal propensity to save is 1/3? What would happen to the marginal propensity to save when a tax cut was enacted causing the multiplier to change to 5?

Answer 1

Answer:

Explanation:

First,

MARGINAL PROPENSITY TO CONSUME (MPC) is the rate of change of an individual's consumption, with change in his income.

1. What  is the MPC when consumption falls from 7 to 6 units, as disposable income changes from 5 to 3 units?

Change in Consumption/ Change in income = (7-6) / (5-3)

MPC = 1/2 = 0.5

2. If personal income is 10 units and personal consumption is 12 units, what is personal savings?

Personal Savings = Personal Income - Personal Consumption

Savings = Income - Consumption

The personal savings is = -2

3. What does the above mean?

The above answer means that the individual is dissaving; either drawing up on former savings or borrowing. It shows he consumed more than this particular income.

As for the other questions, the values or coefficients of all components of the model are needed.