(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the marginal propensity to consume is
A) 0.25.
B) 0.75.
C) 0.8.
D) 0.9.

Question

(Table) The table shows data on consumption at various levels of income. Assume there is no private investment. The value of the marginal propensity to consume is 
A) 0.25. 
B) 0.75. 
C) 0.8. 
D) 0.9.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption that results from a change in income. In this table, as income increases, consumption also increases. The MPC would be calculated as the change in consumption divided by the change in income. Looking at the table, the change in consumption from $4000 to $5000 income level is $900 - $800 = $100, while the change in income is $5000 - $4000 = $1000. Thus, the MPC = 100/1000 = 0.1. 
Similarly, we can calculate the MPC for other income levels and it is found that the MPC is constant and equal to 0.9. Therefore, the best answer choice is D.

(Table) the Table Shows Data on Consumption at Various Levels