Question

Brittany's Marginal Propensity to Consume is 0.85, her autonomous consumption is $10,000 and she consumes $95,000 worth of goods. How much is Brittany saving?

Select one:

a. She is saving $2,000

b. She is saving $4,000

c. She is saving $5,000

d. She is saving $6,000

e. She is saving $8,000

Answer 1

Consumer spending can be calculated using the following formula

C = A + MD

C - consumer spending

A - autonomous consumption

M - MARGINAL PROPENSITY TO CONSUME

D - disposable income

$ 95,000 = $10,000 + 0.85*D

0.85D = $ 85,000

D = $ 100,000

Disposable income that is, income of house hold = $ 100,000

Saving = D - C

Saving = $ 100,000 - 95,000

= $ 5,000

C. She is saving $ 5,000

Please contact if having any query thank you.