Assume that autonomous consumption equals $200 and disposable income equals $1,000. If total consumption equal $800,then the mpc equals
A)0.2.
B)0.6.
C)0.8.
D)1.0.

Question

Quizplus · Accepted Answer

MPC (Marginal Propensity to Consume) is the change in consumption induced by a change in disposable income. MPC can be calculated using the formula:

MPC = Change in consumption / Change in disposable income

Here, we know that autonomous consumption (c) = $200 and disposable income (Yd) = $1,000. Total consumption (C) = $800.

So,

C = c + MPC * Yd

$800 = $200 + MPC * $1,000

MPC = ($800 - $200) / $1,000 = 0.6

Therefore, the answer is B, 0.6.

Assume That Autonomous Consumption Equals $200 and Disposable Income Equals