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marginal propensity to consume

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Assume that Melanie had 200000 of disposable income and spent 180,000 on consumption in 2006 and had 300,000 of disposable income and spent 240,000 on consumption in 2007

If Melanie's went up to 400,000 in 2008 how munch would she be likely to spend on consumption that year?
Ans: 300,000..how do you get 300,000?

If Melanie's income went down to 100,000 in 2008 how much would she be likely to spend on consumption that year?

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Solution Preview

The question is based on the idea of marginal propensity to consume.

Based on the given information when her income is 200000 she spends 180000, and when her income rises to 300000 she spend 240000. Thus an increase in income of 100000 ...

Solution Summary

The solution shows how to estimate an individual's marginal propensity to consume based on the individual's income.