If consumption increases by $9 when after-tax disposable income increases by $10, the marginal propensity to consume (mpc) equals:
A) 0.1.
B) 0.9.
C) 1.0.
D) 9.0.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of a change in disposable income that is spent on consumption. It measures the increase in consumer spending when disposable income increases by $1. In this case, consumption increases by $9 when after-tax disposable income increases by $10. Therefore, the MPC can be calculated as:
MPC = change in consumption / change in disposable income
MPC = $9 / $10
MPC = 0.9
Therefore, the best choice is B which indicates that the marginal propensity to consume is 0.9.

If Consumption Increases by $9 When After-Tax Disposable Income Increases