In a simple, closed economy (no government or foreign sector), income increases from $2,000 to $3,000. If consumption increases from $1,500 to $2,100, the marginal propensity to consume is:
A)$600.
B)$600
C)$0.71
D)$0.71.
E)$0.60.
F)$0.60
G)$0.50.
H)$0.50

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 $600 ($2,100 - $1,500) and the change in income is $1,000 ($3,000 - $2,000). Thus, MPC = $600 / $1,000 = 0.60.

In a Simple, Closed Economy (No Government or Foreign Sector)