Question

If income increases from $20,000 to $30,000 and $9,000 of the new income is spent on consumption, then the MPC is ___________..

Answer 1

0.90

Step-by-step explanation:

The propensity to consume refers to how the level of consumption changes with an increase in income. As with other concepts of this nature, it is necessary to analyse the propensity to consume in terms of Marginal Propensity to Consume(MPC).

MPC=change in consumption/change in income

In this question

change in consumption=$9,000

change in income=$30,000-$20,000=$10,000

MPC=$9,000/$10,000=0.90