Question

The marginal propensity to consume (MPC):_________. a. can be written as the change in consumer spending divided by the change in savings. b. is usually a number between zero and one, but occasionally is a number greater than one. c. is the increase in consumer spending from a $1 increase in disposable income. d. is the increase in disposable income from a $1 increase in consumer spending.

Answer 1

C. is the increase in consumer spending from a $1 increase in disposable income.

Step-by-step explanation:

As the answer explains, the marginal propensity to consume is the change in consumption from one extra dollar of disposable income. For this same reason, the marginal propensity to consume is less than one (a household cannot consume more than it earns unless it borrows).

For example, if a family makes $1 extra, and spends 80 cents of it in consumer goods, the marginal propensity to consume for that family is 0.8.