If disposable income increases by $100 million and consumption increases by $80 million, then the marginal propensity to consume is:
A)0.9.
B)0.8.
C)0.75.
D)1.1.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the increase in consumption that occurs when disposable income increases by $1.

MPC = Change in consumption / Change in disposable income

In this scenario, disposable income increases by $100 million and consumption increases by $80 million.

MPC = $80 million / $100 million = 0.8

Therefore, the correct answer is (B) 0.8.

If Disposable Income Increases by $100 Million and Consumption Increases