Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income
-(Exhibit: Consumption and Disposable Personal Income) The marginal propensity to consume is
A) 0.25.
B) 0.50.
C) 0.60.
D) 0.67.

Question

Use the following to answer questions .
Exhibit: Consumption and Disposable Personal Income 
-(Exhibit: Consumption and Disposable Personal Income) The marginal propensity to consume is
A) 0.25. 
B) 0.50. 
C) 0.60. 
D) 0.67.

Quizplus · Accepted Answer

The marginal propensity to consume can be calculated by dividing the change in consumption by the change in disposable personal income. Looking at the exhibit, when disposable personal income increases from $1000 to $1200, consumption increases from $900 to $1050. Therefore, the change in consumption is $150 and the change in disposable personal income is $200. Thus, the marginal propensity to consume is 0.75 ($150/$200) or 0.50 (rounded to the nearest hundredth). The best choice is B, which corresponds to the calculated value.

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