From an economic modeling perspective, which is a more useful metric to focus on? Omarginal propensity Omaximum propensity O average propensity Oabsolute propensity
Added by Johnathan B.
Close
Step 1
It is a key concept in Keynesian economics, as it helps to explain the multiplier effect. Show more…
Show all steps
Your feedback will help us improve your experience
Sheryl Ezze and 87 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
Suppose that throughout the U.S. economy, individuals spend $$90 \%$$ of every additional dollar that they earn. Economists would say that an individual's marginal propensity to consume is 0.90 . For example, if Jane earns an additional dollar, she will spend $$0.9(1)=\$ 0.90$$ of it. The individual who earns $$\$ 0.90$$ (from Jane) will spend $$90 \%$$ of it, or $$\$ 0.81$$. This process of spending continues and results in an infinite geometric series as follows: $$1,0.90,0.90^{2}, 0.90^{3}, 0.90^{4}, \ldots$$
Sequences; Induction; the Binomial Theorem
Geometric Sequences; Geometric Series
If an individual’s income is so low that consumption exceeds income, then the A. marginal propensity to consume (MPC) must be greater than one. B. average propensity to consume (APC) must be greater than one. C. marginal propensity to consume (MPC) must be negative. D. average propensity to consume (APC) must be negative.
Rashmi S.
In the linear consumption function $$\widehat{c o n s}=\widehat{\beta}_{0}+\widehat{\beta}_{1} \text { inc, }$$ the (estimated) marginal propensity to consume (MPC) out of income is simply the slope, $\widehat{\beta}_{1}$, while the average propensity to consume (APC) is cons/inc $=\widehat{\beta}_{0} /$inc$+\widehat{\beta}_{1}$. Using observations for 100 families on annual income and consumption (both measured in dollars), the following equation is obtained: \begin{array}{c} \widehat{c o n s}=-124.84+0.853 \text { inc} \\ n=100, R^{2}=0.692. \end{array} i. Interpret the intercept in this equation, and comment on its sign and magnitude. ii. What is the predicted consumption when family income is $\$ 30,000 ?$ iii. With inc on the $x$ -axis, draw a graph of the estimated MPC and APC.
Integration
Integration by Substitution
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD