Question

Suppose that, if their income rises by $100, all households in Normalia raise their spending by $90. Instructions: Round your answers to one decimal place. The MPC in Normalia is:

Answer 1

The MPC in Normalia is 0.1 after rounding the answers to one decimal place.

What Is Marginal Propensity to Consume (MPC)?

The percentage of an overall salary increase that a customer spends on purchasing goods and services rather than saving is known as the marginal propensity to consume (MPC) in economics.

Key Features of MPC:

• The percentage of additional income that is spent on consumption is known as the marginal propensity to consume.
• Depending on income, MPC fluctuates. MPC tends to be lower at higher income levels.
• The Keynesian multiplier, which describes the impact of additional investment or government spending as an economic stimulus, is mostly determined by MPC.

Marginal Propensity to Consume (MPC) = (Change in spending)/(Change in income)

= $90/$100 = 0.9

Marginal Propensity to Save

= 1 − MPC

= 1 − 0.9 = 0.1

Hence, the MPC in Normalia is 0.1.

Learn more about Marginal Propensity to Consume (MPC) here:

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