If a family's annual disposable income rose from $60 000 to $65 000 and their desired consumption expenditures rose from $50 000 to $54 000, it can be concluded that the family's
A)marginal propensity to consume is $800.
B)marginal propensity to save is 0.8.
C)average propensity to consume is 0.8.
D)marginal propensity to consume is 0.8.
E)average propensity to save is 0.8.

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the amount by which consumption expenditure changes when disposable income changes by $1. In this case, the change in income is $5,000 and the change in consumption is $4,000. Therefore, the marginal propensity to consume is $4,000/$5,000 = 0.8.

If a Family's Annual Disposable Income Rose from $60 000