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) 0.2.
B) 0.8.
C) 0.3.
D) 0.18.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the ratio of the change in consumption expenditure to the change in disposable income.

MPC = Change in consumption / Change in disposable income

In this case, the change in consumption is $1800 - $1000 = $800, and the change in disposable income is $2000 - $1000 = $1000.

MPC = $800 / $1000 = 0.8

Therefore, the answer is B, and the marginal propensity to consume is 0.8.

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