If real consumption spending increases by $400 billion each time real disposable income rises by $1,000 billion,the marginal propensity to consume is
A) 40
B) 4
C) 0.4
D) 0.04
E) 0.004

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the ratio of the change in consumption spending to the change in disposable income. In this case, we are told that real consumption spending increases by $400 billion for every $1,000 billion increase in real disposable income. Therefore, the MPC is:

MPC = Δconsumption / Δincome
MPC = $400 billion / $1,000 billion
MPC = 0.4

Therefore, the answer is C) 0.4.

If Real Consumption Spending Increases by $400 Billion Each Time