Consumption is $3,500 when income is $4,000, and consumption rises to $5,000 when income is $6,000. What is the marginal propensity to consume?
A)0.75
B)0.5
C)1.33
D)0.25

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated by the change in consumption divided by the change in income. Here, the change in consumption is $5,000 - $3,500 = $1,500, and the change in income is $6,000 - $4,000 = $2,000. Therefore, MPC = $1,500 / $2,000 = 0.75.

Consumption Is $3,500 When Income Is $4,000, and Consumption Rises