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Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329

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BuyFindarrow_forward

Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329
Chapter 23, Problem 8P
Textbook Problem
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If MPC was equal to 0.5, would doubling your income double your consumption spending?

To determine

To explain:

Whether doubling an individual's income will double the consumption spending, if the marginal propensity to comsume is 0.5.

Explanation of Solution

Assume the initial income and initial consumption as Y1 and C1,

From the formula of Marginal propensity to consume:-

  MPC=ΔCΔYΔC=MPC×ΔY

As per the question, change in income is double that of initial income. Let the increase in income be Y2

So, according to the given statement:

Y2=2Y1

Hence,

ΔC=C2C1,ΔY

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