Scenario 34-1. Take the following information as given for a small economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. The marginal propensity to consume for this economy is
A)0.650.
B)0.750.
C)0.650 or 0.664, depending on whether income is $10,000 or $11,000.
D)0.800.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in income. From the given data, when income increases from $10,000 to $11,000 (a change of $1,000), consumption spending increases from $6,500 to $7,250 (a change of $750). Therefore, MPC = $750 / $1,000 = 0.750.