If your income increases by $1,500 and you only consume $900 of it,your marginal propensity to consume would be equal to
A) 600.00.
B) 0.50.
C) 0.75.
D) 0.40.
E) 0.60.

Question

Quizplus · Accepted Answer

Marginal propensity to consume (MPC) is the proportion of additional income that is spent on consumption.

MPC = Change in consumption / Change in income

Here, the change in income is $1,500 and the change in consumption is $900.

MPC = 900 / 1500 = 0.6

Therefore, the marginal propensity to consume is 0.6 or 60%.

If Your Income Increases by $1,500 and You Only Consume