Answer:
MPC = 0.7
MPS = 0.3
APC before the increase in disposable income = 0.875
APC after the increase in disposable income = 0.859
Explanation:
Given that,
Disposable income = $800 billion
Consumption = $700 billion
Savings = $100 billion
Further,
Disposable income increases by $80 billion
Consumption rises by $56 billion
Saving goes up by $24 billion
Therefore,
Marginal propensity to consume(MPC):
= Change in consumption level ÷ Change in disposable income
= $56 billion ÷ $80 billion
= 0.7
So, Marginal propensity to save = 1 - MPC
= 1 - 0.7
= 0.3
Average propensity to consume(Before increase in disposable income):
= Consumption ÷ Disposable income
= $700 billion ÷ $800 billion
= 0.875
Average propensity to consume(After increase in disposable income):
= Consumption ÷ Disposable income
= ($700 + $56) billion ÷ ($800 + $80) billion
= $756 billion ÷ $880
= 0.859
