The marginal propensity to consume is:
A) normally expected to be between zero and one.
B) equal to consumption divided by disposable income.
C) normally assumed to decrease as disposable income increases.
D) normally assumed to increase as disposable income increases.

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the fraction of any additional income that is spent on consumption and is normally expected to be between zero and one. The reason for this is that individuals tend to spend a portion of any increase in income but also tend to save a portion of it. Therefore, the marginal propensity to consume cannot be greater than one, as it is not possible to spend more than the additional income received. It also cannot be zero, as individuals will spend at least some portion of any increase in income.

The Marginal Propensity to Consume Is