Suppose consumption increases by $250 million when income increases by $300. What is the marginal propensity to consume?

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the increase in consumption that results from an increase in income. It is calculated by dividing the change in consumption by the change in income. 
MPC = ΔC/ΔY
From the information given in the question, ΔC = $250 million and ΔY = $300. 
Therefore, MPC = $250 million/$300 = 0.833. 
Hence, the correct answer is A.

Suppose Consumption Increases by $250 Million When Income Increases by $300