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31 May, 07:27

The Patel family has a disposable income of $70,000 annually. Assume that their marginal propensity to consume is 0.8 (the Patel 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 Patel family's annual consumer spending?

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  1. 31 May, 10:19
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    Answer: $66000

    Explanation:

    Annual consumer spending could be calculated using the relation;

    Annual Consumer Spending = (Disposable income * Marginal propensity to consume) + Autonomous consumption spending

    Disposable income = $70000

    Marginal propensity to consume = 0.8

    Autonomous consumption = $10000

    Therefore,

    Annual consumer spending =

    ($70000 * 0.8) + $ 10000

    $56000 + $10000 = $66000
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