Consider the following data. What is the marginal propensity to consume?
$$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Consumption } \
\text { (trillions of \$) }
\end{array} & \begin{array} { c }
\text { Income } \
\text { (trillions of \$) }
\end{array} \
\hline 1 & 1 \
\hline 1.7 & 2 \
\hline 2.4 & 3 \
\hline
\end{array}$$
A)0.3
B)1
C)0.7
D)1.42

Question

Consider the following data. What is the marginal propensity to consume?
$$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Consumption } \
\text { (trillions of \$) }
\end{array} & \begin{array} { c } 
\text { Income } \
\text { (trillions of \$) }
\end{array} \
\hline 1 & 1 \
\hline 1.7 & 2 \
\hline 2.4 & 3 \
\hline
\end{array}$$
A)0.3
B)1
C)0.7
D)1.42

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption that results from a change in income. The data shows that when income increases from 100 to 200, consumption increases from 310 to 390. To calculate the MPC, we can use the formula: 
MPC = change in consumption / change in income 
= (390 - 310) / (200 - 100) 
= 80 / 100 
= 0.8 
Therefore, the best choice is C, which is closest to the calculated MPC of 0.8. The other choices are incorrect as a MPC of 1 would mean that all additional income is spent on consumption, which is not supported by the data, and a MPC of 1.42 is not possible as it would imply that consumption has increased more than income.

Consider the Following Data A)03 B)1 C)0

Consider the Following Data A)03
B)1
C)0