The marginal propensity to consume (MPC)
A) shows how much real disposable income changes when consumption falls.
B) is greater than 1 only if the marginal propensity to save is greater than 1.
C) shows how much of an extra dollar of real disposable income is spent.
D) shows the percentage of real disposable income consumed at each level of income.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) shows how much of an extra dollar of real disposable income is spent, meaning it measures the relationship between changes in income and changes in consumption. This is typically expressed as a fraction or percentage, not a dollar amount, making options A and D incorrect. Option B is also incorrect as it suggests a relationship between the MPC and the marginal propensity to save, which are two separate concepts in macroeconomics.

The Marginal Propensity to Consume (MPC)