Average Propensity to Consume and Save - Video Tutorials & Practice Problems

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Average Propensity to Consume and Save

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Video transcript

All right. So let's talk a little bit more about the propensity to consume with the average and the marginal propensity to consume. So we probably already talked about marginal propensity to consume marginal propensity to save? But sometimes we talk about the average propensity to consume or save. So remember when we talk about disposable income, we have disposable income left after we pay for taxes. Well, we're either going to use it for consumption or savings, right? So we can use these uh these formulas here to get some grasp on how much we're consuming, how much we're saving and our rates of consumption savings. So, we talk about average propensity to consumer save. We think in total amounts. So we're thinking about total amounts here. So what is the total amount of consumption? What is the total amount of savings? Right. And that's true for both of these. So we're gonna take the average propensity to consume is gonna be consumption divided by savings, right? So the total level of consumption divided by the total level of income. Excuse me. Total level of consumption divided by total level of income. And generally, we're talking about disposable income here. Same thing with average propensity to save. We've got savings divided by income. And marginal propensity to consume and save. So, remember when we talked about marginal marginal is the idea of one more, right? We have one more um one more dollar of income? How much of it are we going to consume? How much of it are we gonna save? So when we're dealing with marginal We always have to think about the change. What is the change in consumption? How much extra consumption did we do when we have extra income? Same with savings? Right, marginal propensity to save? How much extra saving do we do when we have extra income? Cool. So let's go ahead and use these formulas and do some practice problems here.

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Problem

Problem

If the Keynesian consumption function is C = 10 + 0.8 Yd then, when disposable income is $1000, what is the average propensity to consume?

A

$0.8

B

$800

C

$810

D

$0.81

E

Cannot be determined

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Problem

Problem

If the Keynesian consumption function is C = 10 + 0.8 Yd then, when disposable income is $1000, what is the marginal propensity to save?