Answer:
(a) The marginal propensity to consume is equal to 0.8.
(b) The marginal propensity to save is equal to 0.2.
(c) The level of consumption is equal to $360.
(d) The average propensity to consume is equal to 0.90.
(e) The level of saving is equal to $40.
(f) The average propensity to save is equal to 0.10.
Explanation:
Given:
C = $40 + 0.8Y ................... (1)
Y = $400 .............................. (2)
(a) the marginal propensity to consume (MPC)
This can be determined by differentiating equation (1) with respect to Y as follows:
MPC = dC/dY = 0.8
Therefore, the marginal propensity to consume is equal to 0.8.
(b) the marginal propensity to save (MPS)
MPS = 1 – MPC
Since MPC = 0.8, we have:
MPS = 1 – 0.8 = 0.2
Therefore, the marginal propensity to save is equal to 0.2.
(c) the level of consumption (C)
Since Y = $400, we substitute into equation (1) to have:
C = $40 + (0.8 * $400) = $40 + $320 = $360
Therefore, the level of consumption is equal to $360.
(d) the average propensity to consume (APC)
This can be calculated as follows:
APC = C / Y = $360 / $400 = 0.90
Therefore, the average propensity to consume is 0.90.
(e) the level of saving (S)
This can be calculated as follows:
S = Y - C = $400 - $360 = $40
Therefore, the level of saving is $40.
(f) the average propensity to save (APS)
This can be calculated as follows:
APS = S / Y = $40 / $400 = 0.10
Therefore, the average propensity to save is 0.10.
