The marginal propensity to consume
A)is the proportion of disposable income consumed
B)is the reciprocal of the ratio of disposable income to saving
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 relative to a change in disposable income. For example, if an individual's disposable income increases by $100 and their consumption increases by $80, then the MPC would be 0.8 ($80/$100). A is incorrect because it only refers to the proportion of disposable income consumed, not the change in consumption relative to a change in income. B is incorrect because it is the reciprocal of the savings rate, not the MPC. D is incorrect because the sum of the MPC and MPS does equal 1, not the difference between them. E is incorrect because the MPC cannot be greater than 1, as it is a ratio of two values.

The Marginal Propensity to Consume