The Smith family's disposable income rose from $40 000 per year to $42 000 and their desired consumption expenditure rose from $38 000 to $39 600. It can be concluded that their

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption expenditure divided by the change in disposable income. In this case, the change in disposable income is $2,000 ($42,000 - $40,000) and the change in consumption expenditure is $1,600 ($39,600 - $38,000).

MPC = $1,600 / $2,000 = 0.8

Therefore, the correct answer is D) MPC is 0.8.

The Smith Family's Disposable Income Rose from $40 000 Per