Share
Explore BrainMass

Income Levels and Marginal Propensity

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?

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