# Answer to Question #57076 in Finance for Shamsudeen AbdulRahman

Question #57076

Suppose a family's annual income is $58,000; if the marginal propensity to save (MPS) is 0.25, and the income for the family decreases by $15,000, then the decrease in consumption will be

Select one:

a. $3,750.

b. $10,500.

c. $11,250.

d. $1,500

Select one:

a. $3,750.

b. $10,500.

c. $11,250.

d. $1,500

Expert's answer

I1 = $58,000; MPS = 0.25, I2 - I1 = $15,000.

MPC = 1 - MPS = 0.75,

MPC = (C2 - C1)/(I2 - I1),

The decrease in consumption will be (C2 - C1) = MPC*(I2 - I1) = 0.75*15,000 = $11,250.

So, the right answer is c. $11,250.

MPC = 1 - MPS = 0.75,

MPC = (C2 - C1)/(I2 - I1),

The decrease in consumption will be (C2 - C1) = MPC*(I2 - I1) = 0.75*15,000 = $11,250.

So, the right answer is c. $11,250.

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