Question

The Patel family has a disposable income of $70,000 annually. Assume that their marginal propensity to consume is 0.8 (the Patel family spends 80% of new disposable income on consumption) and that their autonomous consumption spending is equal to $10,000. What is the amount of the Patel family's annual consumer spending?

Answer 1

Answer: $66000

Explanation:

Annual consumer spending could be calculated using the relation ;

Annual Consumer Spending = (Disposable income × Marginal propensity to consume) + Autonomous consumption spending

Disposable income = $70000

Marginal propensity to consume = 0.8

Autonomous consumption = $10000

Therefore,

Annual consumer spending =

($70000 × 0.8) +$ 10000

$56000 + $10000 = $66000