ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If Karl increases his saving from $1, 500 to $1, 700 and his disposable income increases from $45, 000 to $49, 000, what is his MPC?
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.5
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1
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1.5
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2
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Explanation:
Detailed explanation-1: -In aggregate, when disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption. Consumer spending is one of the most important determinants of demand; it creates the demand that keeps companies profitable and hiring new workers.
Detailed explanation-2: -Answer and Explanation: MPC = increase in consumption / increase in disposable income = 12 / 15 = 0.8.
Detailed explanation-3: -The marginal propensity to save, or MPS, is the increase in household savings when disposable income rises by $1.
Detailed explanation-4: -It is calculated simply by dividing the change in savings observed given a change in income: MPS = S/Y.
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