If consumption equals $1,000 when income is $1,000 and increases to $1,900 when income increases to $2,000, then the marginal propensity to consume is
A) 0.50.
B) 0.90.
C) 1.00.
D) 2.00.

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the ratio of the change in consumption to the change in income. In this case, the change in consumption is $900 (from $1,000 to $1,900) and the change in income is $1,000 (from $1,000 to $2,000). Therefore, the marginal propensity to consume is 900/1000 = 0.90.

If Consumption Equals $1,000 When Income Is $1,000 and Increases