Refer to the diagram for a private closed economy. The marginal propensity to consume is
A) GF/GB.
B) DA/GB.
C) FE/DE.
D) FB/0B.

Question

Refer to the diagram for a private closed economy. The marginal propensity to consume is
A) GF/GB. 
B) DA/GB. 
C) FE/DE. 
D) FB/0B.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the amount of each additional dollar of income that is spent on consumption. In this diagram, the MPC is equal to the ratio of the change in consumption (FE) to the change in disposable income (DE). Therefore, the correct answer is C, FE/DE.

Refer to the Diagram for a Private Closed Economy