If consumption expenditure for a household increases from $300 to $500 when disposable income increases from $200 to $500, the marginal propensity to consume is

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of a change in disposable income that is spent on consumption. In this case, the change in consumption expenditure is $200 ($500 - $300) and the change in disposable income is $300 ($500 - $200). The MPC is calculated as:

MPC = change in consumption expenditure / change in disposable income 
MPC = $200 / $300 
MPC = 0.67

Therefore, the best choice is D, and the MPC is equal to 0.67.

If Consumption Expenditure for a Household Increases from $300 to $500