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:

The APC before change in disposable income was 0.75.

Explanation:

The average propensity to consume shows the part of income that is is consumed. It  can be calculated as the ratio of total disposable income to total consumption.

The disposable income is given as $200 billion, the consumption level is $150 billion, the savings level is $50 billion.

Average propensity to consume is

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

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

= 0.75

So, the average propensity to consume is 0.75.