This data represents a hypothetical economy (all figures are in $billions):

-Refer to the information above to answer this question.What is the value of the MPC?
A)0.4.
B)0.6.
C)0.75.
D)0.8.

Question

This data represents a hypothetical economy (all figures are in $billions):
 
-Refer to the information above to answer this question.What is the value of the MPC?
A)0.4. 
B)0.6. 
C)0.75. 
D)0.8.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption that results from a change in income. In this case, we can calculate the MPC by dividing the change in consumption by the change in income. We can see from the data that as income increases from $1,000 billion to $1,500 billion, consumption increases from $800 billion to $1,000 billion. Therefore, the change in consumption is $200 billion and the change in income is $500 billion. Dividing $200 billion by $500 billion gives us an MPC of 0.4, which is answer choice B.

This Data Represents a Hypothetical Economy (All Figures Are in $Billions)