The Jones family has a disposable income of $80,000 annually. Assume that their marginal propensity to consume is 0.8 (the Jones family spends 80% of new disposable income on consumption) and that their autonomous consumption spending is equal to $10,000. What is the amount of the Jones family's annual consumer spending? 1. $74000 2. $64000 3. $80000 4. $26000

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Business

Nathan

11 July, 05:24

The Jones family has a disposable income of $80,000 annually. Assume that their marginal propensity to consume is 0.8 (the Jones family spends 80% of new disposable income on consumption) and that their autonomous consumption spending is equal to $10,000. What is the amount of the Jones family's annual consumer spending? 1. $74000 2. $64000 3. $80000 4. $26000

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Answers (1)

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Kiley · Answer 1

Option (1) is correct.

Explanation:

Given that,

Annual disposable income = $80,000

Marginal propensity to consume, MPC = 0.8

Autonomous consumption spending = $10,000

Therefore,

annual consumer spending:

C = a + bY

Where,

a = Autonomous consumption spending

b = Marginal propensity to consume

Y = Annual disposable income

C = $10,000 + (0.8 * $80,000)

= $10,000 + $64,000

= $74,000