Erika Casey EEC 2303 Week 7 24 February 2020 1. What is the Marginal Propensity to Consume (MPC)? CONSUMPTION MARGINAL PROPENSITY TO CONSUME INCOME Marginal Propensity to Consume is when someone gets a pay raise and decides to spend that extra money instead of saving it. An example would be someone who wants to finance a newer car when they get that raise. 2. How do you think the value of MPC varies across households with different income levels? Who has relatively higher or lower MPCs, people with higher incomes, or lower incomes? Why? The value of MPC will depend on several factors; not just income levels but also how much they can spend. The value of MPC will be different if someone has debts, compared to someone with fewer bills. Perhaps that increase in pay happens the exact same time as an increase in rent. I do not think income level determines whether someone has a higher or lower MPC. Someone with a higher MPC does not necessarily have a higher income. If John makes $30,000 a year and gets a raise, he may have a higher MPC than Mary because his monthly expenses are low. Mary on the other hand, makes $85,000 a year and gets a raise. That doesn’t mean she will have a higher MPC than John because Mary has a lot of monthly expenses or perhaps fines to pay, and therefore cannot afford to spend the raise money on anything except expenses. So, in determining who has a higher MPC, income level cannot determine that. It would be a person's monthly expenses and upcoming debts/ how much money they receive= high or low MPC. Monthly expenses / pay increase = MPC LEVEL. 3. We have discussed how the government uses fiscal policy to stimulate the economy. How might the government increase individuals disposable income?
