Suppose that disposable income is $1,000, consumption is $700, and the marginal propensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following

Question

26-02-2020
Business

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Suppose that disposable income is $1,000, consumption is $700, and the marginal propensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following

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segehood segehood · Answer 1 · 2020-02-26T07:49:14+01:00

Answer:

E. Consumption = $ 760

Savings = $ 340

Explanation:

Given that,

Disposable Income = 1000

Consumption = 700

MPC = 0.6

Change in disposable income= 100

Recall that

MPC = Change in consumption ÷ change in disposable income.

Therefore

change in consumption = MPC × Change in disposable income.

Thus

Change in C = 0.6 × 100

= 60

Therefore

CONSUMPTION = 700 + 60

= $ 760

Again, recall that

I = C + S

Where I = Income and S = Savings

Therefore

S = I - C

I = 1000 + 100 = 1100

C = 760

S = 1100 - 760

SAVINGS = $ 340

C = $760

S = $340

andromache andromache · Answer 2 · 2022-01-04T11:58:46+01:00

E. Consumption = $ 760

Savings = $ 340

The calculation is as follows:

We know that

MPC = Change in consumption ÷ change in disposable income.

So,

change in consumption = MPC × Change in disposable income.

Thus

Change in Consumption should be

= 0.6 × 100

= 60

Therefore

Consumption is

= 700 + 60

= $ 760

Now

I = C + S

Here

I = Income and S = Savings

So,

S = I - C

Now

I = 1000 + 100

= 1100

And,

C = 760

Now saving should be

= 1100 - 760

= $340

Learn more: brainly.com/question/16911495