The size of the marginal propensity to consume
A) exceeds 1.
B) is between 0 and 1.
C) equals 1.
D) is negative if dissaving is present.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption spending divided by the change in disposable income. The MPC measures the responsiveness of consumption spending to changes in income. The MPC is always between 0 and 1, as consumption cannot exceed disposable income (MPC>1) and people cannot consume nothing (MPC<0). Therefore, choice B is the correct answer. Option A is incorrect because an MPC exceeding 1 is not possible. Option C is incorrect, as an MPC of 1 would mean that consumption spending is equal to disposable income, which is not always the case. Option D is also incorrect as the MPC cannot be negative.

The Size of the Marginal Propensity to Consume