The marginal propensity to consume:
A)is the proportion of disposable income that is consumed.
B)is the ratio of disposable income to consumption.
C)is the change in consumption relative to a change in disposable income.
D)minus the marginal propensity to save must equal 1.
E)is greater than 1 at all levels of income.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is defined as the change in consumption resulting from a change in disposable income. It is expressed as the ratio of change in consumption to change in disposable income. Therefore, choice (C) is the correct answer. Choices (A) and (B) are incorrect because they define the consumption function and disposable income, respectively. Choice (D) is incorrect because the sum of the marginal propensity to consume and the marginal propensity to save must equal 1, not the difference. Choice (E) is incorrect because the marginal propensity to consume is always between 0 and 1.

The Marginal Propensity to Consume