The marginal propensity to consume is the:
A)initial level of consumption after income is earned.
B)average level of consumption over time.
C)fraction of each dollar of extra income that households save.
D)fraction of each dollar of extra income that households spend on consumption.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of each additional dollar of national income that households spend on consumption. In other words, it measures the sensitivity of household consumption to changes in disposable income. For example, if a household gets an extra $100 in disposable income and spends $80 of it on consumption, then the MPC is 0.8 ($80/$100).

The Marginal Propensity to Consume Is The