The marginal propensity to consume (MPC):
A) shows how much income changes when consumption falls.
B) is always greater than one.
C) will be equal to one if the MPS is equal to one.
D) shows the fraction of an extra dollar of income that is spent on consumption.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is defined as the fraction of an additional dollar of income that is spent on consumption. It measures how consumption changes with a change in income, not the other way around, and it is typically less than one since people tend to save a portion of additional income. It cannot be equal to one if the marginal propensity to save (MPS) is also equal to one, as MPC and MPS must sum to one.

The Marginal Propensity to Consume (MPC)