Question

What percentage of last month's income did you spend? How much more would you spend if you won a $1,000 lottery prize? Why might your average and marginal propensities to consume differ?

Answer 1

Answer:

I spent 60% of my last month income.

If I won a lottery of $1,000, I would save all of it.

In most cases, average and marginal propensities to consume changes with an increase in income.

 

Explanation:

The Average Propensity to Consume is the percentage split between income spent and income saved. Marginal Propensity to Consume is the additional increase or decrease in consumption when income changes.

The factors which influence APC and MPC are;

1. Consumer Confidence Index (CCI) - the degree to which a consumer believes in the performance of the economy. If the consumer believes that given the state of the economy, their financial prospects are secure, they will spend more. Some of the factors that positively influence CCI are:

• Increases in Disposable Income as a result of government activities and/or policies.

• Increase in disposable income from other sources

Cheers!