If a family's annual disposable income rose from $60 000 to $65 000 and their desired consumption expenditures rose from $50 000 to $54 000,it can be concluded that the family's
A)marginal propensity to consume is $800.
B)average propensity to consume is 0.8.
C)marginal propensity to consume is 0.8.
D)average propensity to save is 0.8.
E)marginal propensity to save is 0.8.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the increase in consumption expenditures relative to the increase in disposable income. MPC = Δ consumption expenditures / Δ disposable income. In this case, the MPC can be calculated as follows: MPC = (54,000 - 50,000) / (65,000 - 60,000) = 4,000 / 5,000 = 0.8. Therefore, choice C is the correct answer.

If a Family's Annual Disposable Income Rose from $60 000