Suppose disposable income increases from $5 trillion to $6 trillion. As a result, consumption expenditure increases from $4 trillion to ________. This result means the MPC equals ________.

Question

Quizplus · Accepted Answer

The Marginal Propensity to Consume (MPC) is calculated by the change in consumption divided by the change in disposable income. Here, consumption increases by $0.8 trillion ($4.8 trillion - $4 trillion) when disposable income increases by $1 trillion ($6 trillion - $5 trillion), making the MPC = $0.8 trillion / $1 trillion = 0.80.

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