If autonomous consumption rises by $60 and,as a result,Real GDP rises by $240,then the marginal propensity to consume is

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the ratio of the change in consumption to the change in income. In this case, the increase in consumption is the autonomous consumption, which is given as $60. The increase in GDP is $240, which represents the total increase in income. Therefore, the MPC can be calculated as:
MPC = change in consumption/change in income = $60/$240 = 0.25
However, the question asks for the MPC specifically with respect to autonomous consumption, so the answer is:
MPC = change in consumption due to autonomous consumption/change in income = $60/$240 = 0.25
Since the MPC is the proportion of additional income that is spent on consumption, we can say that for every additional dollar of autonomous consumption, households spend 0.75 (1-0.25) dollars on other goods and services. Therefore, the best choice is B: 0.75.

If Autonomous Consumption Rises by $60 And,as a Result,Real GDP