Suppose that when disposable income increases by $2,000, consumption spending increases by $1,500. Given this information, we know that the marginal propensity to consume (MPC) is
A) 0.25.
B) 0.75.
C) 1.33.
D) 4.

Question

Quizplus · Accepted Answer

MPC is the ratio of change in consumption to the change in disposable income. From the given information, we know that when disposable income increases by $2,000, consumption spending increases by $1,500. So, MPC = (change in consumption/change in disposable income) = 1500/2000 = 0.75.

Suppose That When Disposable Income Increases by $2,000, Consumption Spending