The marginal propensity to consume is the:
A) ratio of consumption to income.
B) amount consumed out of an additional dollar of income.
C) amount available for consumption after precautionary saving.
D) ratio of consumption to wealth.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of the additional income that is spent or consumed. It is calculated as the change in consumption divided by the change in income. In other words, it is the amount consumed out of an additional dollar of income. Choice A is incorrect because it does not take into account the change in consumption. Choice C is incorrect because it refers to precautionary saving, which is not relevant to marginal propensity to consume. Choice D is incorrect because it deals with wealth, not income.

The Marginal Propensity to Consume Is The