The marginal propensity to consume
A)is negative if dissaving is present.
B)is greater than 1 if dissaving is present.
C)is between 1/2 and 1.
D)is greater than 1 but less than 2.
E)is between zero and 1.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is defined as the change in consumption spending resulting from a one-unit change in disposable income. It is always between zero and 1 because people save at least some portion of their additional income. When income increases by one unit, households divide the additional income between consumption and saving. The portion of the income that is consumed is the MPC, and the portion that is saved is the marginal propensity to save (MPS). Therefore, the answer is E, which states that the MPC is between zero and 1.

The Marginal Propensity to Consume