If disposable income increases from $5 trillion to $6 trillion and, as a result, consumption expenditure increases from $7 trillion to $7.8 trillion, the MPC is
A) 1.0.
B) 0.8.
C) 5 ÷ 7 = 0.71.
D) 6 ÷ 7.8 = 0.77.
E) 6 ÷ 7 = 0.86.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is calculated as the change in consumption divided by the change in disposable income. Here, the change in consumption is $0.8 trillion ($7.8 trillion - $7 trillion), and the change in disposable income is $1 trillion ($6 trillion - $5 trillion). Therefore, MPC = $0.8 trillion / $1 trillion = 0.8.

If Disposable Income Increases from $5 Trillion to $6 Trillion