If income grows from $3,000 per month to $3,500 per month and consumption rises from $2,800 per month to $3,200 per month,what is the marginal propensity to consume?
A) 1.25
B) 0.8
C) 1.09
D) 0.91

Question

Quizplus · Accepted Answer

The formula for marginal propensity to consume (MPC) is the change in consumption (ΔC) divided by the change in income (ΔY).

MPC = ΔC ÷ ΔY

In this case, 
ΔC = $3,200 - $2,800 = $400 
ΔY = $3,500 - $3,000 = $500

MPC = $400 ÷ $500 = 0.8

Therefore, the best choice for the marginal propensity to consume is B) 0.8 because it represents the ratio of increase in consumption to the increase in income.

If Income Grows from $3,000 Per Month to $3,500 Per