Question

2. Assume that Jacob spent $20,000 of his disposable income of $30,000

Answer 1

Jacob's consumption increased by $12,000.

What is the marginal propensity to consume?

The marginal propensity to consume is defined as the proportion of an increase in income that a consumer consumes instead of saving.

Data and Calculations:

Amount of disposal income in 2019 = $30,000

Amount of consumption in 2019 = $20,000

Increased disposal income = $40,000

Marginal propensity to consume = 0.8

Increase in consumption = $12,000 ($40,000 x 0.8 - $20,000)

Thus, Jacob's consumption increased by $12,000.

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