Suppose when disposable personal income increases from $10,000 to $15,000, consumption increases from $9,000 to $13,000. What is the marginal propensity to consume?
A) 0.2
B) 0.4
C) 0.6
D) 0.8

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income. Here, the change in consumption is $13,000 - $9,000 = $4,000, and the change in income is $15,000 - $10,000 = $5,000. Therefore, MPC = $4,000 / $5,000 = 0.8.

Suppose When Disposable Personal Income Increases from $10,000 to $15,000