Suppose that when disposable income decreases by $2,000, consumption spending increases by $1500. 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 ratio of the change in consumption spending to the change in disposable income. In this case, when disposable income decreases by $2,000, consumption spending increases by $1,500. Therefore, the MPC is 1,500/2,000 = 0.75 or 75%. Thus, the correct answer is option B.

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