Jane supports herself at university by working in a bookstore earning $300 a month, which she spends entirely every month. If she gets a salary increase of $100 a month, she spends $90 more dollars on consumption expenditure. Jane's MPC is equal to
A) 0.10.
B) $90.
C) 1.00.
D) 0.50.
E) 0.90.

Question

Quizplus · Accepted Answer

The Marginal Propensity to Consume (MPC) is calculated as the change in consumption expenditure divided by the change in income. In Jane's case, her consumption expenditure increases by $90 when her income increases by $100, so MPC = $90 / $100 = 0.90.

Jane Supports Herself at University by Working in a Bookstore