Use the following to answer questions .
Exhibit: Consumption and Real GDP
-(Exhibit: Consumption and Real GDP) The marginal propensity to consume equals
A) 0.
B) 0.5.
C) 1.0.
D) 2.0.

Question

Use the following to answer questions .
Exhibit: Consumption and Real GDP 
-(Exhibit: Consumption and Real GDP) The marginal propensity to consume equals
A) 0. 
B) 0.5. 
C) 1.0. 
D) 2.0.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of each additional dollar of disposable income that is spent on consumption. In the given exhibit, the consumption function intersects the 45-degree line at a point where the slope of the consumption function is 0.5. This means that for every additional dollar of disposable income, individuals are spending 50 cents on consumption. Therefore, the MPC is 0.5.

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