Suppose that when disposable income increases by $2,000, consumption spending increases by $1,500. 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 defined as the ratio of the change in consumption spending to the change in disposable income. In this case, when disposable income increases by $2,000, consumption spending increases by $1,500. Therefore, MPC = $1,500/$2,000 = 0.75.

Suppose That When Disposable Income Increases by $2,000, Consumption Spending