Final answer:
The marginal propensity to consume (MPC) is the fraction of a change in disposable income that is spent on consumption. For example, with an MPC of 0.8, 80% of additional income is spent, and 20% is saved. It's used to analyze consumer behavior and economic policy impacts.
Step-by-step explanation:
The marginal propensity to consume (MPC) is defined as A. the fraction of a change in disposable income that is spent on consumption. It represents how much of additional income a household will spend rather than save. If a household has a marginal propensity to consume of 0.8, it means that for every additional dollar of income, 80 cents will be spent on consumption, while the remaining 20 cents will be saved.
The concept is crucial in understanding how households respond to changes in their income, which in turn has implications for economic policy and business cycles. While the MPC can give insights into consumer behavior, it's also important to note that it is different from the marginal propensity to spend, which includes other economic activities such as investment, government purchases, and net exports.