Question

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. Refer to Scenario 34-2. The marginal propensity to consume for this economy is Group of answer choices 0.840. 0.83. 0.64. 0.56.

Answer 1

Answer:

0.64

Explanation:

Marginal propensity to consume is given by the ratio of the change in consumption spending to the change in income.

In this scenario, the change in consumption spending is:

$\Delta CS = \ 7,040-\ 6,720\\\Delta CS = \ 320$

The change in income is:

$\Delta I = \ 8,500-\ 8,000\\\Delta CS = \ 500$

The marginal propensity to consume for this economy is:

$MPC=\frac{\Delta CS}{\Delta I}=\frac{\ 320}{\ 500} \\MPC =0.64$

The answer is 0.64.