Asked in EconomicsAlgebraColleges and Universities
If the marginal propensity of consumption begins to decline what will happen to the average propensity of consumption?
September 12, 2011 9:34PM
If the marginal (per unit) consumption goes down, then the average consumption will also go down because the average is a function of each unit's individual value.
In other words, if the marginal perpensity to consume for the past 3 months was .2 each month, and for the next month it went down to .1, then your average would be:
Month 1 Avg = .2
Month 2 Avg = .2 (.2+.2/2)
Month 3 Avg = .2 (.2+.2+.2/3)
Month 4 Avg = .175 (.2+.2+.2+.1/4)