-In the above table, there are no taxes (so that real GDP equals disposable income) and no imports or exports. If real GDP decreases from $6,000 to $5,000, the marginal propensity to consume is
A) -750.
B) -0.75.
C) 0.75.
D) 0.80.

Question

-In the above table, there are no taxes (so that real GDP equals disposable income) and no imports or exports. If real GDP decreases from $6,000 to $5,000, the marginal propensity to consume is
A) -750. 
B) -0.75. 
C) 0.75. 
D) 0.80.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income. If real GDP decreases from $6,000 to $5,000, the MPC would be positive, and typically it is a fraction less than 1. Given the options, 0.75 is a reasonable MPC value.

-In the Above Table, There Are No Taxes (So That