MPC and APC.
Explanation of Solution
MPC is associated to the changes that occur in income and spending. Hence, MPC is calculated by
However, in the case of APC, it is an average where the total amount spent on consumption is compared to the total income earned. Hence, it is calculated as follows:
When there is in increase in the income, two choices available are either to spend or to save the money. As MPC is associated to changes on spent income, the amount that is not spent will have to be saved and this becomes MPS. So, the numerator will have change in the money spent or saved and when added together it has to be the total change in income. So, the denominator will have the total change in income. One will be the result when adding MPS and MPC.
Concept Introduction:
Marginal propensity to consume: Marginal propensity to consume refers to the sensitivity of change in the consumption level due to changes occurred in the income level.
Marginal propensity to save (MPS): Marginal propensity to save refers to the sensitivity of change in the saving level due to changes occurred in the income level.
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Chapter 30 Solutions
Economics (Irwin Economics)
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- In Fig.3, if production is 20,000: Select one: P12 11 10 = 9 8 7 6 5 4 2 1 0 Fig.3 O a. DWL - $45,000 and NSB = $105,000. O b. DWL = $30,000 and NSB = $90,000. O c. DWL = $30,000 and NSB = $150,000. O d. DWL $60,000 and NSB = $90,000. O e. DWL = $45,000 and NSB = $150,000. MSC MPC MSB 0 10 20 30 40 50 60 70 80 90 100 Q (000)arrow_forwardIf consumption is $30,000 when income is $35,000, and consumption increases to $35,000 when income increases to $43,000, the MPS is Select one: O a. None of the options O b. 0 O c. 0.625 O d. 0.375arrow_forward4. Suppose that the table below shows an economy's relationship between real output and the inputs needed to produce that output: LO4 Input Quantity Real GDP 150.0 $400, 112.5 300 75.0 200 a. What is productivity in this economy? b. What is the per-unit cost of production if the price of each input unit is $2? c. Assume that the input price increases from $2 to $3 with no accompanying change in productivity. What is the new per-unit cost of production? In what direction would the $1 increase in input price push the economy's aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the level of real output? d. Suppose that the increase in input price does not occur but, instead, that productivity increases by 100 percent. What would be the new per-unit cost of production? What effect would this change in per-unit production cost have on the economy's aggregate supply curve? What effect would this shift of aggregate supply have on the price…arrow_forward
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