Suppose that when disposable income increases by $1,000, consumption spending increases by $750. Given this information, we know that the marginal propensity to consume (MPC)is
A).25.
B).75.
C)$1,000/$750 = 1.33.
D)1/.25 = 4.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of additional disposable income that is spent on consumption. In this case, we can calculate the MPC as follows:

MPC = change in consumption/change in disposable income
MPC = $750/$1,000
MPC = 0.75

Therefore, the correct answer is B.

Suppose That When Disposable Income Increases by $1,000, Consumption Spending