The marginal propensity to consume is assumed to be
A) greater than 1.
B) less than 1.
C) greater than 2.
D) less than 0.5.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the increase in consumer spending when disposable income increases by $1. It is assumed to be less than 1 because individuals may save some portion of their additional income rather than spending it all. Therefore, the MPC is the fraction of additional income that is spent, and it cannot be greater than 1. It is also typically greater than 0 because individuals usually spend some of their additional income. A realistic estimate of the MPC is usually between 0.6 and 0.8, depending on the population and the state of the economy.

The Marginal Propensity to Consume Is Assumed to Be