Refer to the information provided in Table 23.10 below to answer the question(s) that follow.
Table 23.10
-Refer to Table 23.10. The MPC in this economy is
A) 0.5.
B) 0.6.
C) 0.75.
D) 0.8.

Question

Refer to the information provided in Table 23.10 below to answer the question(s) that follow.
Table 23.10 
-Refer to Table 23.10. The MPC in this economy is
A) 0.5. 
B) 0.6. 
C) 0.75. 
D) 0.8.

Quizplus · Accepted Answer

MPC (marginal propensity to consume) is the change in consumption that results from a change in income. From the table, when income increases from $1,000 to $1,500, consumption increases from $1,300 to $1,950. The change in consumption is $650 while the change in income is $500. Therefore, the MPC is 650/500 = 1.3. But since we know that some portion of this additional consumption may be funded by savings, we can adjust the MPC to only account for the portion that is actually spent, which is 0.75 or 75%. Hence, choice C is the correct answer.

Refer to the Information Provided in Table 23