If the Jones family's disposable income increases from $1200 to $1700 and their desired saving increases from - $100 to +$100, then the family's
A)average propensity to consume is 0.40.
B)average propensity to consume is 0.60.
C)marginal propensity to consume is 0.60.
D)marginal propensity to save is 1.
E)marginal propensity to consume is 0.40.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated by the change in consumption divided by the change in income. The change in income is $500 ($1700 - $1200), and the change in saving is $200 ($100 - (-$100)), so the change in consumption is $300 ($500 - $200). Therefore, MPC = $300 / $500 = 0.60.

If the Jones Family's Disposable Income Increases from $1200 to $1700