Question

The marginal propensity to consume is the:

a. dollar amount that income increases by when consumption increases by $1.
b. dollar amount that consumption increases by when income increases.
c. proportion of total income that is consumed.
d. proportion of extra income that is consumed.

Answer 1

Answer: proportion of extra income that is consumed. (D)

Step-by-step explanation:

The marginal propensity to consume is the proportion of an additional income that an individual consumes.

For example, if a household earns an extra dollar of disposable income, while the marginal propensity to consume is 0.60 this means that at that dollar, the household will spend 60 cents and save 40 cents.