Question

The Patel family has a disposable income of $90,000 annually. Assume that their marginal propensity to consume is 0.8 (the Patel family spends 80% of new disposable income on consumption) and that their autonomous consumption spending is equal to $10,000. What is the amount of the Patel family\'s annual consumer spending?

Answer 1

To get the annual spending of Patel family, we will need to add the amount of consumption according to their marginal propensity to consume and their autonomous consumption spending. with the formula

Consumption= Autonomous consumption + (Disposable incomeXmarginal propensity )
Where
Autonomous consumption = $10000
Disposable income = $90000
margina propensity = 80%
substitute all given value to get the consumption
Consumption =  $82,000
Patel family annual consumer spending is $82000.