If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is
A)0.9.
B)0.8.
C)0.75.
D)0.6.
E)0.5.

Question

Quizplus · Accepted Answer

Marginal propensity to consume (MPC) is the ratio of change in consumption to change in disposable income. 
MPC = Change in consumption / Change in disposable income
Given, 
Disposable income increased by $100 million,
Consumption increased by $90 million, 
Therefore, 
MPC = Change in consumption / Change in disposable income
    = $90 million / $100 million
    = 0.9
Hence, the answer is (A) 0.9.

If Disposable Income Increases by $100 Million, and Consumption Increases