When disposable income increases from $9 trillion to $10 trillion, consumption expenditure increases from $6 trillion to $6.8 trillion.The MPC is
A) 1.00.
B) 0.80.
C) 0.60.
D) 0.68.
E) $6.8 trillion.

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 ($6.8 trillion - $6 trillion) and the change in disposable income is $1 trillion ($10 trillion - $9 trillion). Therefore, MPC = $0.8 trillion / $1 trillion = 0.80.

When Disposable Income Increases from $9 Trillion to $10 Trillion