Jane supports herself at college by working in a bookstore earning $300 a month, which she spends entirely every month.If she gets a salary increase of $100 a month, she spends $90 more dollars on consumption expenditure.Jane's MPC is equal to
A) 1.00.
B) 0.90.
C) $90.
D) 0.10.
E) 0.50.

Question

Quizplus · Accepted Answer

MPC (Marginal Propensity to Consume) is the ratio of the change in consumption expenditure to the change in income.

From the given information:

Income before salary increase = $300 
Income after salary increase = $400 
Change in income = $100

Consumption expenditure before salary increase = $300 
Consumption expenditure after salary increase = $300 + $90 = $390 
Change in consumption expenditure = $390 - $300 = $90

MPC = Change in consumption expenditure / Change in income = $90 / $100 = 0.9

Therefore, the answer is B.

Jane Supports Herself at College by Working in a Bookstore