Scenario 34-2.The following facts apply to a small,imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2.The marginal propensity to consume for this economy is
A)0.64.
B)0.83.
C)0.56.
D)0.840.

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the change in consumption spending divided by the change in income. In this case, the change in consumption spending is $7,040 - $6,720 = $320, and the change in income is $8,500 - $8,000 = $500. Therefore, the marginal propensity to consume is $320 / $500 = 0.64.