Answer:
The computation is shown below:
Explanation:
The computation is shown below:
As we know that
a) Marginal Propensity to Consume (MPC) = Change in consumption ÷ change in disposable income
MPC = $15 billlion ÷ $20 billion
MPC = 0.75
And,
Marginal Propensity to Save (MPS) = change in saving ÷change in disposable income
MPS = $5 billion ÷ $20 billion
MPS = 0.25
Now
b) Before the increase in disposable income
The average propensity to consume (APC) is
= Consumption ÷ disposable income
= $150 billion ÷$200 billion
= 0.75
And,
After the increase in the disposable income
New disposable income = $200 billion + $20 billion
= $220 billion
And,
New consumption = $150 billion + $15 billion
= $165 billion
So,
APC = New consumption ÷ new disposable income
= $165 billion ÷ $220 billion
= 0.75
