The marginal propensity to consume:
A) is the amount by which consumption increases when after-tax income increases by $1.
B) is closely linked to the multiplier effect of government spending.
C) is a value between 0 and 1.
D) All of these are true.

Question

Quizplus · Accepted Answer

All of these are true. The marginal propensity to consume (MPC) is the amount by which consumption increases when after-tax income increases by $1. MPC is closely linked to the multiplier effect of government spending and it is always a value between 0 and 1, as it represents the proportion of additional income that people choose to spend rather than save.

The Marginal Propensity to Consume