Question

A.) Describe the saving schedule. B.) Suppose a family’s annual disposable income is $8000 of which...

A.) Describe the saving schedule.

B.) Suppose a family’s annual disposable income is $8000 of which it saves $2000.

(a)   What is their APC?

(b)   If their income rises to $10,000 and they plan to save $2800, what are their MPS and MPC?

(c) Did the family’s APC rise or fall with their increase in income?

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Homework Answers

Answer #1

A. Savings Schedule

Savings schedule shows the relationship between savings and level of income. A rise in interest rate increases the amount of savings to reap the high rate of return on investment. Savings become attractive because of rising interest rates.

2. A. APC - Average Propensity to Consume = Consumption expenditure/ DIsposal Income = 6000/8000 = 0.75

B.Marginal Propensity to Save (MPS) = Change in Savings/ Change in Disposable Income = 800/2000 = 0.4

Marginal Propensity to consumption = Change in Consumption/ Change in Disposable Income

= 1200/2000 = 0.6

c. APC for increased Income = 7200/10000 = 0.72

APC fell from 0.75 to 0.72.

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