Q1. Describe the marginal propensity to consume and explain why it is always less than one?
Q2. Suppose that the Graeme had $200,000 of disposable income and spent $180,000 on consumption in the year 2006 and had $300,000 of disposable income and spent $240,000 on consumption in the year 2007.
a) Determine Graeme's average propensity to consume in the year 2006?
b) Determine the Graeme's average propensity to consume in the year 2007?
c) Determine the Graeme's marginal propensity to consume?
d) If Graeme's income rise to $400,000 in the year 2008, how much would he be likely to spend on consumption that year? Illustrate the average propensity to consume?
e) If Graeme's income reduce to $100,000 in the year 2008, how much would he be likely to spend on consumption that year? Explain the average propensity to consume?