Robert Tetley's disposable income rose from $40 000 per year to $42 000 and his desired consumption expenditure rose from $38 000 to $39 600. It can be concluded that his
A)marginal propensity to consume decreased.
B)marginal propensity to consume is 0.05.
C)marginal propensity to save is 0.20.
D)average propensity to consume is constant.
E)average propensity to save is always 0.05.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income, which is ($39,600 - $38,000) / ($42,000 - $40,000) = $1,600 / $2,000 = 0.8. Therefore, the marginal propensity to save (MPS) is 1 - MPC = 0.2.

Robert Tetley's Disposable Income Rose from $40 000 Per Year