Question

The marginal propensity to consume equals the:A)proportion of consumer spending as a function of aggregate disposable income.B)change in savings divided by the change in aggregate disposable income.C)ratio of the change in consumer spending to the change in aggregate disposable income.

Answer 1

Answer: C)ratio of the change in consumer spending to the change in aggregate disposable income.

The marginal propensity to consume measures what proportion would a person spend on consumption if their disposable income changed.

For eg If a persons disposable income increases by $10,000 and they spend $9000 of it on consumption then their Marginal propensity to consume is 9000/10,000= 9/10= 0.9. This means that they will spend 90% of the change in disposable income on consumption.

Step-by-step explanation: