If real disposable income increased by $10,000 and real consumption spending increased by $7,500,what is the marginal propensity to consume (MPC)?
A) 0.25
B) 1.0
C) 0.75
D) 1.75
E) 1.25

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) measures the percentage change in consumption for every one dollar increase in income. It is calculated as the change in consumption divided by the change in income.

MPC = change in consumption / change in income

In this case, the change in real disposable income is $10,000 and the change in real consumption spending is $7,500.

MPC = $7,500 / $10,000 = 0.75

Therefore, the MPC is 0.75. Option C is the correct answer.

If Real Disposable Income Increased by $10,000 and Real Consumption