Answer :
The marginal propensity to consume (MPC) will be 0.75 if disposable income increases by $20 billion to $40 billion, with households consuming $15 billion of the increase and saving $5 billion of that income.
Write in brief about marginal propensity to consume (MPC).
The marginal propensity to consume (MPC) is the portion of a customer's overall wage rise that they choose to spend on products and services rather than save.The marginal propensity to consume is a notion found in Keynesian macroeconomic theory. It is calculated by dividing the change in consumption by the change in income.
A consumption line, which is a sloped line made by charting the change in income on the horizontal "x" axis and the change in consumption on the vertical "y" axis, is used to represent MPC.
To solve the question :
[tex]MPC= \frac {dC}{dY}[/tex]
Where,
MPC = marginal propensity to consume
C = consumption function
Y = change in disposable income that produced the consumption
Given,
C = $15 billion
Y = $20 billion
therefore,
MPC = ($15/$20 = 0.75)
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