Question

your friend just got an unexpected $1,000 tax refund. she plans to put $800 towards paying off credit - card debt, $100 toward her student loans, and use the remaining $100 to purchase a new grill for her deck. whats your friends marginal propensity to consume (mpc)? mpc: 0.1 by how much did she increase her net wealth? change in net wealth: $

Explanation:

Step1: Define MPC formula

MPC = Change in Consumption / Change in Disposable Income.

Step2: Calculate change in consumption

She spends $100 on a grill, so change in consumption = $100.

Step3: Calculate change in disposable income

She has a $1000 tax - refund, so change in disposable income = $1000.

Step4: Calculate MPC

MPC=$\frac{100}{1000}= 0.1$ (already given).

Step5: Calculate change in net - wealth

Change in net - wealth=Change in Disposable Income - Change in Consumption.
Change in net - wealth = $1000 - 100=900$.

Answer:

Change in net wealth: $900$
MPC: $0.1$