When disposable income increases from $9 trillion to $10 trillion, consumption expenditure increases from $6 trillion to $6.8 trillion. The MPC is
A)$6.8 trillion.
B)0.68.
C)0.80.
D)1.00.
E)0.60.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated by dividing the change in consumption by the change in disposable income. Here, the change in consumption is $0.8 trillion ($6.8 trillion - $6 trillion) and the change in disposable income is $1 trillion ($10 trillion - $9 trillion). Thus, MPC = $0.8 trillion / $1 trillion = 0.80.

When Disposable Income Increases from $9 Trillion to $10 Trillion