Suppose that after disposable income increases by $500 billion,consumption expenditures increase by $450 billion.Therefore,the marginal propensity to consume would be
A) 1.11
B) 9.00
C) 0.09
D) 0.90
E) 0.82

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the ratio of the change in consumption expenditures to the change in disposable income. In this case, we have:

MPC = change in consumption / change in disposable income

MPC = ($450 billion) / ($500 billion)

MPC = 0.9

Therefore, the best choice is D) 0.90, as this represents the marginal propensity to consume in response to a change in disposable income.

Suppose That After Disposable Income Increases by $500 Billion,consumption Expenditures