Suppose an increase in disposable income from $3 trillion to $3.2 trillion increases consumption from $2.5 trillion to $2.6 trillion. The marginal propensity to consume (MPC) is _____
A) 0.1.
B) 0.2.
C) 0.5.
D) 0.8.
E) 0.9.

Question

Quizplus · Accepted Answer

MPC = (change in consumption/change in disposable income)
MPC = [(2.6 - 2.5)/(3.2-3)]
MPC = 0.1/0.2
MPC = 0.5
Therefore, the marginal propensity to consume (MPC) is 0.5.

Suppose an Increase in Disposable Income from $3 Trillion to $3.2