The table given below shows the values of different components of aggregate expenditure of an economy.The marginal propensity to consume (MPC) equals:?Table 9.2?? (Trillions of Dollars) \text { (Trillions of Dollars) } (Trillions of Dollars) Rea Net Disposab Consumpti Savin Planned Governme Net Planned 1 Taxe le on g Investme nt Export Aggregate G D s Income (C) (S) nt Purchases s Expenditures P ( N T ) ( Y − N T ) (I) (G) ( X − C + I + G + ( X − ( Y ) M) M ) 5.0 1.0 4.0 3.9 0.1 1.0 1.0 − 0.7 5.2 5.5 1.0 4.5 4.3 0.2 1.0 1.0 − 0.7 5.6 6.0 1.0 5.0 4.7 0.3 1.0 1.0 − 0.7 6.0 6.5 1.0 5.5 5.1 0.4 1.0 1.0 − 0.7 6.4 7.0 1.0 6.0 5.5 0.5 1.0 1.0 − 0.7 6.8 \begin{array}{llccccccc}\text { Rea } & \text { Net } & \text { Disposab } & \text { Consumpti } & \text { Savin } & \text { Planned } & \text { Governme } & \text { Net } & \text { Planned } \1 & \text { Taxe } & \text { le } & \text { on } & \text { g } & \text { Investme } & \text { nt } & \text { Export } & \text { Aggregate } \\mathrm{GD} & \text { s } & \text { Income } & \text { (C) } & \text { (S) } & \text { nt } & \text { Purchases } & \text { s } & \text { Expenditures } \\mathrm{P} & (\mathrm{NT}) & (\mathrm{Y}-\mathrm{NT}) & & & \text { (I) } & \text { (G) } & (\mathrm{X}- & \mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}- \(\mathrm{Y}) & & & & & & & \text { M) } & \mathrm{M}) \\hline 5.0 & 1.0 & 4.0 & 3.9 & 0.1 & 1.0 & 1.0 & -0.7 & 5.2 \5.5 & 1.0 & 4.5 & 4.3 & 0.2 & 1.0 & 1.0 & -0.7 & 5.6 \6.0 & 1.0 & 5.0 & 4.7 & 0.3 & 1.0 & 1.0 & -0.7 & 6.0 \6.5 & 1.0 & 5.5 & 5.1 & 0.4 & 1.0 & 1.0 & -0.7 & 6.4 \7.0 & 1.0 & 6.0 & 5.5 & 0.5 & 1.0 & 1.0 & -0.7 & 6.8\end{array} Rea 1 GD P ( Y ) 5.0 5.5 6.0 6.5 7.0 Net Taxe s ( NT ) 1.0 1.0 1.0 1.0 1.0 Disposab le Income ( Y − NT ) 4.0 4.5 5.0 5.5 6.0 Consumpti on (C) 3.9 4.3 4.7 5.1 5.5 Savin g (S) 0.1 0.2 0.3 0.4 0.5 Planned Investme nt (I) 1.0 1.0 1.0 1.0 1.0 Governme nt Purchases (G) 1.0 1.0 1.0 1.0 1.0 Net Export s ( X − M) − 0.7 − 0.7 − 0.7 − 0.7 − 0.7 Planned Aggregate Expenditures C + I + G + ( X − M ) 5.2 5.6 6.0 6.4 6.8 A) 0.20 or 1/5.B) 0.40 or 2/5.C) 0.80 or 4/5.D) 0.90 or 9/10.E) 0.60 or 3/5.

Question

The table given below shows the values of different components of aggregate expenditure of an economy.The marginal propensity to consume (MPC) equals:?Table 9.2??  (Trillions of Dollars)   \text { (Trillions of Dollars)  }  (Trillions of Dollars)    Rea   Net   Disposab   Consumpti   Savin   Planned   Governme   Net   Planned  1  Taxe   le   on   g   Investme   nt   Export   Aggregate  G D  s   Income   (C)    (S)    nt   Purchases   s   Expenditures  P ( N T )  ( Y − N T )   (I)    (G)   ( X − C + I + G + ( X − ( Y )   M)   M )  5.0 1.0 4.0 3.9 0.1 1.0 1.0 − 0.7 5.2 5.5 1.0 4.5 4.3 0.2 1.0 1.0 − 0.7 5.6 6.0 1.0 5.0 4.7 0.3 1.0 1.0 − 0.7 6.0 6.5 1.0 5.5 5.1 0.4 1.0 1.0 − 0.7 6.4 7.0 1.0 6.0 5.5 0.5 1.0 1.0 − 0.7 6.8 \begin{array}{llccccccc}\text { Rea }  &  \text { Net }  &  \text { Disposab }  &  \text { Consumpti }  &  \text { Savin }  &  \text { Planned }  &  \text { Governme }  &  \text { Net }  &  \text { Planned } \1  &  \text { Taxe }  &  \text { le }  &  \text { on }  &  \text { g }  &  \text { Investme }  &  \text { nt }  &  \text { Export }  &  \text { Aggregate } \\mathrm{GD}  &  \text { s }  &  \text { Income }  &  \text { (C)  }  &  \text { (S)  }  &  \text { nt }  &  \text { Purchases }  &  \text { s }  &  \text { Expenditures } \\mathrm{P}  &  (\mathrm{NT})   &  (\mathrm{Y}-\mathrm{NT})   &   &   &  \text { (I)  }  &  \text { (G)  }  &  (\mathrm{X}-  &  \mathrm{C}+\mathrm{I}+\mathrm{G}+(\mathrm{X}- \(\mathrm{Y})   &   &   &   &   &   &   &  \text { M)  }  &  \mathrm{M}) \\hline 5.0  &  1.0  &  4.0  &  3.9  &  0.1  &  1.0  &  1.0  &  -0.7  &  5.2 \5.5  &  1.0  &  4.5  &  4.3  &  0.2  &  1.0  &  1.0  &  -0.7  &  5.6 \6.0  &  1.0  &  5.0  &  4.7  &  0.3  &  1.0  &  1.0  &  -0.7  &  6.0 \6.5  &  1.0  &  5.5  &  5.1  &  0.4  &  1.0  &  1.0  &  -0.7  &  6.4 \7.0  &  1.0  &  6.0  &  5.5  &  0.5  &  1.0  &  1.0  &  -0.7  &  6.8\end{array}  Rea  1 GD P ( Y )  5.0 5.5 6.0 6.5 7.0 ​  Net   Taxe   s  ( NT )  1.0 1.0 1.0 1.0 1.0 ​  Disposab   le   Income  ( Y − NT )  4.0 4.5 5.0 5.5 6.0 ​  Consumpti   on   (C)   3.9 4.3 4.7 5.1 5.5 ​  Savin   g   (S)   0.1 0.2 0.3 0.4 0.5 ​  Planned   Investme   nt   (I)   1.0 1.0 1.0 1.0 1.0 ​  Governme   nt   Purchases   (G)   1.0 1.0 1.0 1.0 1.0 ​  Net   Export   s  ( X −  M)   − 0.7 − 0.7 − 0.7 − 0.7 − 0.7 ​  Planned   Aggregate   Expenditures  C + I + G + ( X − M )  5.2 5.6 6.0 6.4 6.8 ​ ​ A) 0.20 or 1/5.B) 0.40 or 2/5.C) 0.80 or 4/5.D) 0.90 or 9/10.E) 0.60 or 3/5.

Ginny DelMundo · Accepted Answer

Final Answer : C, Explanation :  The Marginal Propensity to Consume (MPC) is calculated as the change in consumption divided by the change in disposable income. From the table, when disposable income increases from 4.0 to 4.5 trillion dollars (a change of 0.5 trillion), consumption increases from 3.9 to 4.3 trillion dollars (a change of 0.4 trillion). Therefore, MPC = 0.4 / 0.5 = 0.8 or 4/5.

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