Autonomous consumption equals $40 million. When disposable income equals $600 million, planned consumption spending equals $440 million. When disposable income equals $900 million, planned consumption spending equals $640 million. What is the marginal propensity to consume?
A) .67
B) .69
C) .72
D) -72

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated by the change in consumption divided by the change in income. From the given data, when disposable income increases from $600 million to $900 million, consumption spending increases from $440 million to $640 million. Thus, the change in consumption is $200 million ($640 million - $440 million), and the change in income is $300 million ($900 million - $600 million). Therefore, MPC = $200 million / $300 million = 0.67.

Autonomous Consumption Equals $40 Million