Question

if Dawn's disposable income increases from $30,000 to $35,000 what is his marginal propensity to consume if he spends $4,000 of the increase on consumer products?

Answer 1

Marginal Propensity to Consume = 0.8

Step-by-step explanation:

Marginal propensity to consume (MPC) exhibits consumer's spending behavior as to what percentage of extra dollar is spent from extra dollar of income.

MPC is calculated as Increase in consumption divided by increase in income.

MPC: Increase in consumption / increase in income: 4,000 / 5,000

MPC = 0.8