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11 July, 04:37

Alice's disposable income increases by $1,000, and she spends $600 of it. Assuming no taxes, Alice's: marginal propensity to save is 0.4 and she saves $400. marginal propensity to save is 0.4 and she saves $600. MPC is 0.4 and she saves $400. MPC is 0.6 and she consumes $400.

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  1. 11 July, 04:57
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    a). The marginal propensity to save is 0.4 and she saves $400

    b). The marginal propensity to consume is 0.6 and she consumes $600

    Explanation:

    The marginal propensity to save can be expressed as;

    Marginal propensity to save=change in saving/change in income

    where;

    change in saving=total income-expenditure

    change in saving = (1,000-600) = $400

    change in income=$1,000

    replacing;

    Marginal propensity to save=400/1,000=0.4

    The marginal propensity to save=0.4, and she saves $400

    The marginal propensity to save is 0.4 and she saves $400

    The marginal propensity to consume

    Marginal propensity to consume=expenditure/change in income

    where;

    Expenditure=$600

    Change in income=$1,000

    replacing;

    Marginal propensity to consume=600/1,000=0.6

    The marginal propensity to consume is 0.6 and she consumes $600
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