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# Income Levels and Marginal Propensity

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Please answer in detail the following questions. Further, place my questions before each of your specific responses so I can follow along with clarity.

1. How might income levels affect "marginal propensities to consume?"

2. Why don't we count credit card credit limits as money?

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#### Solution Preview

1. How might income levels affect "marginal propensities to consume?"

In the consumption function, the disposable income (Yd = Y - T) is the determinant of consumption, as shown in equation: C(t) = C0 + c * Yd(t)
where,
C(t) = total consumption in year t
C0 = autonomous consumption (independent of the level of income)
c = marginal propensity to consume (MPC), 0 < c < 1
Yd(t) = total disposable income in year t

Marginal Propensity to Consume: The income induced part of consumption is critical to the economic model . As income increases consumption rises by a constant fraction of that increase. The change in consumption for every \$1 change in income is called ...

#### Solution Summary

The solution answers the question(s) below.

\$2.19