If consumption expenditures for a household increase from $1000 to $1800 when disposable income rises from $1000 to $2000, the marginal propensity to consume is
A) 0.18.
B) 0.3.
C) 0.2.
D) 0.8.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income. Here, the change in consumption is $800 ($1800 - $1000) and the change in income is $1000 ($2000 - $1000). Thus, MPC = $800 / $1000 = 0.8.

If Consumption Expenditures for a Household Increase from $1000 to $1800