Question

Find the value of marginal propensity to consume n marginal propensity to to save when income is 750,1000 n saving is 150,200 ?

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Answer 1

Answer:

Consumption Function, C = 100+ b Y where Y in the income in the economy and b= marginal propensity to consume.

At equilibrium level of output,

AS=AD

Y= C+I

=> 1,000 = 100 + b (1,000) + 120

=> 1,000 = 220+ 1,000 b

=> 1,000 b = 1,000 - 220

=> b = 780/ 1,000 = 0.78.

Since MPC = 0.78,

MPS = 1- MPC

= 1- 0.78 = 0.22

Step-by-step explanation:

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Answer 2

Correct Question

Find the value of marginal propensity to consume and marginal propensity to save when income changes from 750 to 1000, and the saving changes from 150 to 200 respectively.

Answer

The Marginal Propensity to Consume is 0.8 and the Marginal Propensity to Save is 0.2.

Given

• Income changes from 750 to 1000
• Savings changes from 150 to 200

To Find

• Marginal Propensity to Consume
• Marginal Propensity to Save

Solution

Income = Savings + Consumption

or, Consumption = Income - Savings

Hence

Original Consumption = Original Income - Original Savings

= 750 - 150 units

= 600 units

New Consumption = New Income - New Savings

= 1000 - 200 units

= 800 units

Marginal Propensity to Consume

= Change in Consumption/Change in Income

= (800 - 600)/(1000 - 750)

= 200/250

= 0.8

Marginal Propensity to Save

= Change in Savings/Change in Income

= (200 - 150)/(1000 - 750)

= 50/250

= 0.2

Therefore the Marginal Propensity to Consume is 0.8 and the Marginal Propensity to Save is 0.2.

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