Why MPC is higher in case of poor communities and lower in case of rich communities?

The reason is that in case of rich communities most of their basic needs have already been fulfilled and all the additional increments in income are saved (leading to higher MPS), whereas in poor communities most of their primary needs remain unfulfilled, so that additional increase in income lead to increase their …

Is the marginal propensity to consume MPC greater for lower income or higher income households?

The marginal propensity to consume (MPC) is lower at the higher wealth quintiles. For low-wealth households, the MPC is 10 times larger than it is for wealthy households.

Is marginal propensity to consume greater than marginal propensity to save the value of multiplier?

When marginal propensity to consume is greater than marginal propensity to save, the value of investment multiplier will be greater than 5.

What is the relationship between marginal propensity to consume and average propensity to consume?

The average propensity to consume is the fraction of the their total income that consumers are spending. Remember marginal propensity to consume is how much you spend out of each additional dollar. But the average propensity to consume is your total overall spending as a fraction of your total overall income.

What happens when marginal propensity to consume increases?

The higher the MPC, the higher the multiplier—the more the increase in consumption from the increase in investment; so, if economists can estimate the MPC, then they can use it to estimate the total impact of a prospective increase in incomes.

How does marginal propensity to consume affect the economy?

In Keynesian macroeconomic theory, the marginal propensity to consume is a key variable in showing the multiplier effect of economic stimulus spending. Specifically, it suggests that a boost in government spending will increase consumer income, and in turn, consumer spending will rise.

When the marginal propensity to consume is greater than marginal propensity to save the value of investment multiplier will be greater than 5?

(i)When Marginal Propensity to Consume is greater than Marginal Propensity to Save, the value of investment multiplier will be greater than 5. (ii) The value of Marginal Propensity to Save can never be negative. So, K < 5 even if MPC > MPS. (ii) Yes, the statement is true.

Can APC never be zero?

Average propensity to consume can never be zero The only possible way for APC to be zero is when consumption becomes zero. However, this is impossible because the consumption function includes autonomous consumption (Ca), which is always positive.

Can the average propensity to consume be greater than one?

Answer : Yes, the average propensity to consume can be greater than one when the consumption exceeds income. At that level, the average propensity to save will be negative. APC will be greater than 1 if the APS is negative.

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