At your future job, you get an unexpected raise from $50,000 a year to $75,000 a year. With the increased income, you decide to

Question

2 years ago

8

increase your consumption from $30,000 a year to $40,000 a year. Calculate your marginal propensity to consume (MPC).

1 answer:

seropon [69] · Answer 1 · 2022-11-30T01:04:40+03:00

The Marginal propensity to consume is 0.4

Here, we are calculating the marginal propensity to consume (MPC).

Change in Income = New Income - Old Income

Change in Income = $75,000 - $50,000

Change in Income = $25,000

Change in Consumption = New Consumption - Old Consumption

Change in Consumption = $40,000 - $30,000

Change in Consumption = $10,000

Marginal propensity to consume = Change in Consumption / Change in Income

Marginal propensity to consume = $10,000 / $25,000

Marginal propensity to consume = 2/5

Marginal propensity to consume = 0.4

Therefore, the Marginal propensity to consume is 0.4.