If disposable income increases from $5 trillion to $6 trillion and,as a result,consumption expenditure increases from $7 trillion to $7.8 trillion,the MPC is
A)1.0.
B)6 ÷ 7.8 = 0.77.
C)6 ÷ 7 = 0.86.
D)5 ÷ 7 = 0.71.
E)0.8.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in disposable income. Here, the change in consumption is $0.8 trillion ($7.8 trillion - $7 trillion) and the change in disposable income is $1 trillion ($6 trillion - $5 trillion). Thus, MPC = $0.8 trillion / $1 trillion = 0.8.

If Disposable Income Increases from $5 Trillion to $6 Trillion