Question

What will be the level of induced consumption if the marginal

propensity to consume is 0.55 while the level of income (Y) is
500?

Answer 1

To calculate the level of induced consumption with a marginal propensity to consume of 0.55 and an income of 500, multiply the two values resulting in $275 of induced consumption.

Step-by-step explanation:

The question addresses the topic of induced consumption within the context of macroeconomics, specifically dealing with the consumption function and the marginal propensity to consume (MPC). Given that the marginal propensity to consume is 0.55 and the level of income (Y) is 500, you would calculate the level of induced consumption by multiplying the income by the marginal propensity to consume. Therefore, induced consumption would be:

Induced Consumption = MPC × Income

Induced Consumption = 0.55 × 500

Induced Consumption = $275

This means if an economy has a marginal propensity to consume of 0.55 and receives an income of 500 units, consumers will spend an additional $275 on top of their autonomous consumption.