When Javier's income increases by $5,000,he spends an additional $3,750 dollars.This implies that his marginal propensity to consume is 0.75.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of additional income that is spent.

MPC = Change in consumption / Change in income

Here, we are given that when Javier's income increases by $5,000, he spends an additional $3,750.

So, the MPC = 3750 / 5000 = 0.75

Therefore, the statement is true.

When Javier's Income Increases by $5,000,he Spends an Additional $3,750