If disposable income increases by $500 million,and consumption increases by $400 million,then the marginal propensity to consume is
A)1.25.
B)0.8.
C)0.6.
D)0.4.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the increase in consumption resulting from a one-unit increase in income.

MPC = Change in consumption / Change in income

In this case, disposable income increased by $500 million, and consumption increased by $400 million.

So, MPC = $400 million / $500 million = 0.8.

Therefore, the answer is B.

If Disposable Income Increases by $500 Million,and Consumption Increases by $400