Question

Take a look at Table $12-2$ and consider the changes in planned real consumption and saving associated with an increase in real GDP from $\backslash (14.0$ trillion to $\backslash )15.0$ trillion to calculate the marginal propensity to consume.

Short answer

The marginal consume propensity is$MPC=0.025.$

Step-by-step solution

Step: 1 Overall cost: 

The overall cost for all services / goods in the economy is known as aggregate demand. Consumption spending , investment , and government expenditure make up the closed economy. However, in an open economy, it comprises not only these but also exporting and imports .

It can be stated mathematically a $Y=C+I+G+X-M.$

Step: 2 Graph: 

When the current price is $100$, real GDP is $\$14$trillion; however, when the market price is raised to $110$, real GDP decreases to $\$15$trillion. The demand curve, which displays the inverse relationship between level of prices and real GDP, will trend upward.

Step: 3 Finding value: 

Marginal Propensity to Consume is the amount of change in consumption due to change in income level. It can also be written as $MPC$.

Therefore, $MPC$can be computed as shown below:

$\begin{array}{l}MPC=\frac{\mathrm{\partial }C}{\mathrm{\partial }Y}\end{array}$

$MPC=\frac{0.10}{4}$

$MPC=0.025.$