Suppose disposable income for an entire economy rises from $400 billion to $440 billion and desired consumption rises from $350 billion to $380 billion.We can conclude that the marginal propensity to consume for this economy is
A)0.65.
B)0.75.
C)0.80.
D)0.90.
E)1.33.

Question

Quizplus · Accepted Answer

The formula for marginal propensity to consume (MPC) is the change in consumption divided by the change in disposable income. 
MPC = (Change in consumption)/(Change in disposable income) 
In this case, the change in consumption is $30 billion ($380 billion – $350 billion) and the change in disposable income is $40 billion ($440 billion – $400 billion). 
MPC = 30/40 = 0.75. 
Therefore, the answer is B, 0.75.

Suppose Disposable Income for an Entire Economy Rises from $400