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13 June, 16:15

The Wong family has a disposable income of $70,000 annually. Currently, the Wong family spends 80% of new disposable income on consumption. Assume that their marginal propensity to consume is 0.8 and that their autonomous consumption spending is equal to $10,000.

What is the amount of the Wong family's annual consumer spending?

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  1. 13 June, 16:20
    0
    Answer:The answer is $330,000

    Explanation:

    80% of $70,000 = consumption

    = $56,000, MPC = 0.8

    C = a + by where a = autonomous consumption, b = MPC, The value of output is equal to households disposable income (Y = yd)

    C = 56,000 + 0.8yd, consumption spending = 10,000

    Y = C + I

    Y = 56,000 + 0.8yd + 10,000

    Rearrange the equation

    Y - 0.8 = 5,600 + 10,000

    Factor out variable Y

    (1-0.8) Y = 56,000 + 10,000

    Simplify

    0.2Y = 66,000

    Divide both sides by 0.2

    0.2Y / 0.2 = 66,000 / 0.2

    Y = 330,000

    Therefore the amount of Wong family annual consumer spending is $330,000
  2. 13 June, 16:35
    0
    Annual consumer spending for the Wong family is = $58.000

    Explanation:

    Disposable income $70,000

    Marginal propensity to consume 0.8

    Autonomous consumption spending $10,000.

    If the disposable income (the money needed to survive) is $10.000 then the $60.000 left to complete $70.000 will be consumed at a rate of 80% or 0.8 cents per each dollar received. Therefore,

    Annual consumer spending = $10.000 + ($60.000*0.8)

    Annual consumer spending = $10.000 + $48.000

    Annual consumer spending = $58.000
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