If the Jones family's disposable income increases from $1200 to $1700 and their desired saving increases from -$100 to +$100,then the family's
A)average propensity to consume is 0.60.
B)average propensity to consume is 0.40.
C)marginal propensity to consume is 0.40.
D)marginal propensity to consume is 0.60.
E)marginal propensity to save is 1.

Question

Quizplus · Accepted Answer

- Average propensity to consume (APC) = Total Consumer Spending / Total Disposable Income 
- Marginal propensity to consume (MPC) = Change in Consumer Spending / Change in Disposable Income 
Given information: 
- Initial disposable income = $1200 
- Final disposable income = $1700 
- Initial desired saving = -$100 (which means the family is spending beyond their means) 
- Final desired saving = +$100 
Calculation: 
- Total consumer spending = Disposable Income - Desired Saving 
    - Initial consumer spending = $1200 - (-$100) = $1300 
    - Final consumer spending = $1700 - (+$100) = $1600 
- Change in consumer spending = Final Consumer Spending - Initial Consumer Spending = $1600 - $1300 = $300 
- Change in disposable income = Final Disposable Income - Initial Disposable Income = $1700 - $1200 = $500 
- MPC = Change in Consumer Spending / Change in Disposable Income = $300 / $500 = 0.6 
Therefore, the correct choice is D, which is the marginal propensity to consume is 0.60.

If the Jones Family's Disposable Income Increases from $1200 to $1700