If your real disposable income goes up by $200 per week, and your real consumption spending goes up by $160 per week, you have a marginal propensity to consume of
A) 0.2.
B) 0.8.
C) 1.2.
D) 1.0.

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 is calculated as the change in consumption divided by the change in disposable income.

In this case, the change in disposable income is $200 per week and the change in consumption is $160 per week.

MPC = change in consumption/change in disposable income  
MPC = $160/$200  
MPC = 0.8

Therefore, the answer is B. The marginal propensity to consume is 0.8. This means that for every additional dollar of disposable income, 80 cents are spent on consumption.

If Your Real Disposable Income Goes Up by $200 Per