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the production function for the economy is Y = K1/4(EL)3/4, the marginal propensity to consume is 70% the depreciation rate is 2%, the rate of technological progress is 1%, and the population growth rate is 2
the production function for the economy is Y = K1/4(EL)3/4, the marginal propensity to consume is 70%
the depreciation rate is 2%, the rate of technological progress is 1%, and the population growth rate is 2.5%.
In this question, "the marginal propensity to consume" means households save 30%? because it means household consume 70%?
Expert Solution
Marginal Propensity to Consume shows that part of income which is spent by the consumer on consumption
Total Income is either saved or consumed since, Y = C + S
On the other hand, Marginal Propensity to Save is that part of income which is saved by the consumer.
So, if MPC is 70%, then it implies that 70% of the total income is spent on consumption and remaining 30% income is saved by the consumer.
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