Question

Consider movements from points F to K in both panels of Figure 12-1. Use the resulting changes in planned real consumption and saving corresponding to the change in real disposable income to calculate the marginal propensities to consume and to save.

Short answer

marginal propensities to consume is$0.8$

marginal propensities to save is$0.2$

Step-by-step solution

introduction

Marginal propensity to consume is the proportion of progress in utilization and change in discretionary cash flow. It alludes to the small portion of extra pay that is spent on utilization.

Marginal propensity to save is the small portion of extra cash that is saved. It is given by the proportion of progress in reserve funds to change in pay.

explanation

A change in consumption $∆C$and saving $∆S$is a result of a change in disposable income role="math" localid="1651729112353" $∆D$

role="math" localid="1651729119593" $\Rightarrow \mathrm{\Delta D}=\mathrm{\Delta }C+\mathrm{\Delta }S$

Marginal propensity to consume is,

role="math" localid="1651729338497" $\begin{array}{r}\Rightarrow \frac{\mathrm{\Delta }C}{\mathrm{\Delta D}}=\frac{48000}{60000}=0.8\\ \end{array}$

Marginal propensity to save is,

role="math" localid="1651729359511" $\begin{array}{r}\Rightarrow \frac{\mathrm{\Delta S}}{\mathrm{\Delta D}}=\frac{12000}{60000}=0.2\\ \end{array}$