What is your marginal rate of consumption (MPC)?

Solve these four questions and respond on two classmates for each one.

  1. What is your marginal rate of consumption (MPC)? If your income increased $1,000 per month until retirement, how much would you’re spending on consumption goods increase?

Classmate’s answers.

A. Now I do not know my MPC because my consumption and spending changes often with my schedule, But I would say with an increased 1000 dollars a month until retirement I would say my spending would go up by about 200 dollars per month while saving 800 for a while and the older I got the more I would spend per month and less I would save that way I am not losing money overtime.

B. If my income increased by a $1,000 per month my marginal rate of consumption would increase by 30%. Spending an extra $300 a month would benefit me tremendously. I think it is easy for people to live outside of their means. My philosphy is that people spend money on things that they neccesarly don’t need so they can impress people that don’t really care about them. Don’t get me wrong I do believe that money makes life easier. Just making the correct decisions when it comes to money is crucial to becoming successful in todays world.

  1. The aggregate supply-aggregate demand diagram assumes the short-run aggregate supply curve is upward sloping (where more is supplied when prices increase) because output prices increase faster than input prices, such as wages. Do you believe wages adjust at the same rate as output prices? How frequently are your wages adjusted?

Classmate’s answers.

A. No, I do not believe that wages adjust at the same rate as output prices. After a while, when looking at the firm’s profitability, workers may ask for a raise in wages. As the cost of input increases, the seller can increase the price of output which may increase their profitability.

B. I don’t believe that wages adjust at the same rate as output prices. All of the jobs I worked for would barely be above minimum wage because they made profits, but not enough profits to increase working wages. There were barely enough profits to provide a stable inventory at some of their locations, therefore I would rarely ever get 1 raise. However, once I started working for Amazon, a company that definitely makes enough profit, I experienced something I’ve never experienced before. I received 2 raises in less than 2 weeks because their increases were coming in so fast. They’re not always going to increase wages so often, though. They just have a better balance with their output prices vs input prices that allowed them to positively affect wages faster.

  1. What number do you think is most likely to be the velocity of money?

Classmate’s answers

A. I believe that the velocity of money is somewhere around 1.2. This is due to Covid-19 and its negative impacts on the economy. Hopefully the price increases that everyone is experiencing will slow down soon.

B. I believe the velocity of money is between a 1.3-1.4. Over the last 3 months even after covid I have seen a significant increase in prices. I work at a grocery store and am daily changing prices for food products. They are constantly getting more and more expensive as the weeks pass. I believe it will keep increasing for the next few years as well.

  1. Should the Fed have helped bail out big investment banks that were failing during the Great Recession (e.g., Bear Sterns or AIG)?

Classmate’s answers

A. I think that it would have been a good thing for the federal reserve to help out the investment banks that were failing during the recession. It would have been better in the end for both the customers and owners if they had been helped out by the Fed.

B. Yes I think it was a good idea Fed helped to bail out investment banks that were failing because it helped strengthen the financial regulations to rebuild the trust of the people in the banking system.

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