EBK MACROECONOMICS
5th Edition
ISBN: 8220106773925
Author: KRUGMAN
Publisher: MAC HIGHER
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Chapter 11, Problem 4P
To determine
Concept Introduction:
The formula to calculate change in GDP is,
Here,
is autonomous spending. - MPC is marginal propensity to consume.
Marginal Propensity to Consume ( MPC ): It is defined as the change which occurs in total consumption level due to change in income.
The formula to calculate MPC is,
Here,
is change in income. 
is change in consumption level. - MPC is marginal propensity to consume.
Marginal Propensity to Save ( MPS ):. It is defined as the variation in the saving when the income of an individual varies.
The formula to calculate MPS is:
Here,
- MPC is marginal propensity to consume.
- MPS is marginal propensity to save.
Consumption Level ( C ): It is one of the largest components of GDP .The individual consumption Depends on the disposable income.
Consumption Function: It shows how the change in disposable income of an individual changes the consumption level.
The formula to calculate consumption function is,
Here,
- C is consumption level.
is autonomous consumption.
is disposable income.- MPC is marginal propensity to consume.
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