In a simple, closed economy (no government or foreign sector), disposable income increases from $2,000 to $3,000. If consumption increases from $1,500 to $2,100, the marginal propensity to consume is:

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in disposable income. Here, the change in consumption is $2,100 - $1,500 = $600, and the change in disposable income is $3,000 - $2,000 = $1,000. Therefore, MPC = $600 / $1,000 = 0.60.

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