Question

Scenario 34-1. Take the following information as given for a small, imaginary economy: • When income is $10,000, consumption spending is $6,500. • When income is $11,000, consumption spending is $7,250. Refer to Scenario 34-1. The marginal propensity to consume for this economy is

a. 0.750.
b. 0.650.
c. 0.800.
d. 0.650 or 0.664, depending on whether income is $10,000 or $11,000.

Answer 1

Answer:

Marginal propensity will be 0.75

So option (A) will be correct answer

Explanation:

We have given when income is $10000 then consumption spending is $6500

And when income is $11000 then consumption spending is $7250

So difference in income = $11000-$10000 = $1000

And difference in consumption spending = $7250 - $6500 = $750

We have to find the marginal propensity

Marginal propensity is given by ratio of difference of consumption spending and difference in income

So marginal propensity $=\frac{750}{1000}=0.75$

So option (a) will be correct answer