Given that autonomous consumption equals $1,000,disposable income equals $20,000,and the MPC equals 0.80,the level of
A)Saving equals $4,000.
B)Saving equals $19,000.
C)Consumption equals $17,000.
D)Consumption equals $16,000.

Question

Quizplus · Accepted Answer

Consumption equals $17,000.The MPC is the marginal propensity to consume, which is the change in consumption divided by the change in disposable income. In this case, the MPC is 0.80, which means that for every $1 increase in disposable income, consumption will increase by $0.80.Autonomous consumption is the amount of consumption that occurs even when disposable income is zero. In this case, autonomous consumption is $1,000.Disposable income is the amount of income that is left after taxes and other deductions. In this case, disposable income is $20,000.To calculate consumption, we can use the following formula:Consumption = Autonomous consumption + MPC * Disposable incomeConsumption = $1,000 + 0.80 * $20,000Consumption = $1,000 + $16,000Consumption = $17,000

Given That Autonomous Consumption Equals $1,000,disposable Income Equals $20,000,and the MPC