Question

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. Refer to Scenario 34-2. The marginal propensity to consume for this economy is Group of answer choices 0.840. 0.83. 0.64. 0.56.

Answer 1

0.64

Step-by-step explanation:

Marginal propensity to consume is given by the ratio of the change in consumption spending to the change in income.

In this scenario, the change in consumption spending is:

`\Delta CS = \$7,040-\$6,720\\\Delta CS = \$320`

The change in income is:

`\Delta I = \$8,500-\$8,000\\\Delta CS = \$500`

The marginal propensity to consume for this economy is:

`MPC=(\Delta CS)/(\Delta I)=(\$320)/(\$500) \\MPC =0.64`

The answer is 0.64.