Answered

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If the government pays an
individual a [tex]$1,000 stimulus
check and this individual saves
$[/tex]200, uses [tex]$50 on foreign
goods, and sets $[/tex]300 aside for
taxes, what is their marginal
propensity to consume?
A. 0.7
B. 0.6
C. 0.45
D. 0.4

Sagot :

GinnyAnswer
To determine the marginal propensity to consume (MPC), we need to follow these steps:

1. Identify the total amount spent: We start by calculating the total amount of the stimulus check that the individual actually spent on domestic goods and services. Given the stimulus check is [tex]$1,000, we subtract the amounts saved, spent on foreign goods, and set aside for taxes. - Saved amount: $[/tex]200
- Foreign goods amount: [tex]$50 - Taxes amount: $[/tex]300

We calculate the total amount spent as follows:
[tex]\[ \text{Total amount spent} = \$1000 - (\$200 + \$50 + \$300) \][/tex]

Working this out:
[tex]\[ \text{Total amount spent} = \$1000 - \$550 = \$450 \][/tex]

2. Calculate the marginal propensity to consume (MPC): The MPC is the ratio of the total amount spent to the total amount of the stimulus check. This shows the fraction of any additional income that the individual spent on consumption.

[tex]\[ \text{MPC} = \frac{\text{Total amount spent}}{\text{Total stimulus check}} \][/tex]

Plugging in the values:
[tex]\[ \text{MPC} = \frac{450}{1000} = 0.45 \][/tex]

3. Determine the closest answer option: We compare our calculated MPC to the given options to find the closest match. The options provided are:
- A. 0.7
- B. 0.6
- C. 0.45
- D. 0.4

The calculated MPC of 0.45 exactly matches option C.

Therefore, the marginal propensity to consume (MPC) for this individual is
[tex]\[ \boxed{0.45} \][/tex]
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