In an economy with no taxes and no imports,disposable income increases from $1 000 to $2 000.If consumption increases from $800 to $1 500,the marginal propensity to consume is 0.7.

Question

Quizplus · Accepted Answer

The formula for marginal propensity to consume (MPC) is:

MPC = ΔC ÷ ΔY

Where ΔC is the change in consumption and ΔY is the change in disposable income.

Using the values given:

MPC = (1 500 - 800) ÷ (2 000 - 1 000)

MPC = 0.7

Therefore, the statement is true.

In an Economy with No Taxes and No Imports,disposable Income