When income is $600 million, consumption spending is $500 million. When income is $800 million, consumption spending is $660 million. What is the marginal propensity to consume?
A) 80
B) 20
C) .8
D) .5

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income. Here, the change in consumption is $660 million - $500 million = $160 million, and the change in income is $800 million - $600 million = $200 million. Therefore, MPC = $160 million / $200 million = 0.8.

When Income Is $600 Million, Consumption Spending Is $500 Million