Final answer:
In a business context, the Monthly Spending is derived by multiplying the Net Potential Market with the initial calculation results,
using the marginal propensity to consume determined as 0.9 when the marginal propensity to save is 0.1. Understanding the multiplier effect and accurately calculating net annual income and monthly income are crucial for financial planning and decision-making.
Step-by-step explanation:
To multiply the result of an initial calculation by the Net Potential Market to obtain the Monthly Spending, we can follow a stepwise approach often used in business and economics courses. Initially, the marginal propensity to consume (MPC) must be determined, which in this case is 0.9, when the marginal propensity to save (MPS) is given as 0.1.
This is based on the fundamental economic concept that MPC + MPS equals 1. The after-tax income should be multiplied by the MPC to calculate consumption. For example, if the after-tax income is $300, the consumption would be 0.9 multiplied by $300, calculating to $270 in consumption.
The step involving the multiplier effect demonstrates how individual spending affects wider economic activity. The multiplier can be calculated using the formula 1/(1 - MPC), where the MPC is the fraction of additional income that is consumed.
Additionally, when comparing net annual income and monthly income across different job positions, consideration of taxes, social security, and medicare deductions is essential to arrive at the accurate figures for decision-making.
This analysis helps someone like Peter make informed financial decisions, especially when planning to move out and manage his monthly expenses. His MPC plays a significant role in determining how much of his income is directed towards consumption in contrast to savings.