Answer :
Answer:
MPC = 0.8
MPC = 0.2
Explanation:
Marginal propensity to consume is the proportion of an increase in income that is spent on consumption.
Marginal propensity to consume = increase in consumption / increase in disposable income
Marginal propensity to save is the proportion of an increase in income that is saved.
Marginal propensity to save = increase in savings / increase in disposable income
Disposable income is either consumed or saved. so,
Marginal propensity to consume + marginal propensity to save = 1
Marginal propensity to consume = $64 / $80 = 0.8
Marginal propensity to save = $16 / $80 = 0.2
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Answer: MPC = 0.8 ; MPS = 0.2
Explanation:
Given the following ;
Increase in disposable income = $80 billion
Increase in consumption = $64 billion
Increase in savings = $16 billion
The disposable income of a country can be regarded as the that part of a country's or an individual's income which isn't subject to any sort of deduction such tax which one can decide to save, spend on consumption or investment.
Marginal Propensity to Consume(MPC) = ratio of the tendency of an economy or individual to spend on consumption with change in value or amount of disposable income
MPC = Increase in consumption /increase in disposable income
MPC = $64 billion / $80 billion = 0.8
2. Marginal Propensity to Save(MPS) = ratio of the tendency of an economy or individual to save its income with change in value or amount of disposable income
MPS = Increase in saving /increase in disposable income
MPS = $16 billion / $80 billion = 0.2
Summing up both MPS and MPC will always give a value of 1, As disposable income are always placed in either of the two categories : Consumption or Saving.