Discussion Question 10-1 (Auto-Gradable) a. The difference between the MPC and t
ID: 1156845 • Letter: D
Question
Discussion Question 10-1 (Auto-Gradable) a. The difference between the MPC and the APC is that the MPC is the change in income divided by the change in consumption, whereas the APC is total income divided by total consumption total income divided by total consumption, whereas the APC is the change in income divided by the change in consumption change in consumption divided by the change in income, whereas the APC is total consumption divided by total income. total consumption divided by total income, whereas the APC is the change in consumption divided by the change in income. b. The sum of the MPC and the MPS must equal 1 because these are determined by macroeconomic policy makers. 0 when the MPC and the MPS equal 1 the economy is in equilibrium. total income must be spent or saved. all additional income must be spent or saved.Explanation / Answer
Q1. MPC (marginal propensity to consume) measures the change in consumption due to 1 unit change in income. So it is change in consumption divided by change in income. ON the other hand, APC is the average propensity to consume which measures the consumption per unit of income and is measured as total consumption divided by total income. So option (c) is correct.
Q2. All income must be either spent or saved. Income cannot be wasted. That's why MPC+MPS=1. So (c) is correct.