In a simple, closed economy (no government or foreign sector), if disposable income increases by $1,000 and consumption increases by $600, the marginal propensity to consume is:

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the ratio of the change in consumption to the change in disposable income. In this case, the change in consumption is $600 and the change in disposable income is $1,000, so the marginal propensity to consume is 600/1,000 = 0.6. Therefore, the correct answer is (D).

In a Simple, Closed Economy (No Government or Foreign Sector)