Homework Answers
a) MPC = Change in consumption / change in income.
1200 - 1000 / 1700 - 1300 = 200 / 400
= 0.5, the marginal propensity to consume is 0.5. MPS = 1 - MPC = 0.5 and the marginal propensity to save will also be 0.5.
b) As the multiplier is 3.9 , 870 / 3.9 = 233.07 reduction in the income will reduce the consumption by 870.
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