The Smith family'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 their
A)average propensity to consume decreased from 0.950 to 0.943.
B)average propensity to save decreased from 0.950 to 0.943.
C)marginal propensity to consume is 0.050.
D)marginal propensity to consume increased from 0.050 to 0.058.
E)marginal propensity to save is 0.80.

Question

Quizplus · Accepted Answer

Average propensity to consume (APC) is the ratio of consumption expenditure to disposable income. 
Before the increase in income: APC = 38,000/40,000 = 0.95
After the increase in income: APC = 39,600/42,000 = 0.943
Therefore, the APC decreased from 0.95 to 0.943.

The Smith Family's Disposable Income Rose from $40 000 Per