Macroeconomics week 4 THE marginal propensity to consume PDF

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The equations of the marginal propensity to consume as well as explanations...

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UNIVERSITY OF THE PEOPLE BUS 1104 T-5 AY 2021 KELVIN KATERERE .K MACROECONOMICS

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1is the marginal propensity to consume when consumption changes from 7 to 6 and disposable income changes from 5 to 3?

Marginal Propensity to consume (MPC) is the ratio of the change in consumption ( ΔC) ΔΔto the change in personal disposable income (ΔYd). The formula for Marginal propensity to consume is the ratio of change in consumption in personal disposable incomes. MPC = ( ΔC) / (ΔYd) With the definition above, consumption changed from 7 to 6 giving a difference of 1 simplified as (7-6) and the disposable income having changed 5 to 3 giving a personal disposable income of 2 (5-3) Therefore : MPC = ½ OR 0.5 Henceforth, for every $1 that a person holds there is a 0.50c personal disposable income.

2)If disposable personal income is 10 and consumption is 12, what is personal savings? What does this mean?

Personal Income refers to the amount that is not spent in disposable incomes. Personal Saving

= Disposable personal Income - Consumption = 10 - 12

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= -2 3)What is the multiplier when the change in equilibrium level of real GDP in the aggregate expenditures model is 9, and change in autonomous aggregate expenditures is 3?

Multiplier = ΔReal GDP demanded at each price level ___________________________________ Initial Δ (Component of AD)

= 9 /3 =3

4) What is the multiplier when the marginal propensity to save is 1/3?

Multiplier =

⅓

= 3.03ff 5)

What would happen to the marginal propensity to save when a tax cut was enacted

causing the multiplier to change to 5?

Multiplier = ⅕ or 0.2 References Rittenberg L & Tregarthen T (2012) Macroeconomics Principles

Somer Anderson (2021) Investopedia The Marginal Propensity to Consume https://www.investopedia.com/terms/m/marginalpropensitytoconsume.asp

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