In the table given below Y represent the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports. Table 9.3
Refer to Table 9.3.Calculate the marginal propensity to consume in the economy.
A)0.25
B)0.50
C)0.75
D)0.80
E)1.25

Question

In the table given below Y represent the aggregate expenditure of the economy on C = consumption, I = investment, G = government projects, and X = net exports. Table 9.3
 Refer to Table 9.3.Calculate the marginal propensity to consume in the economy.
A)0.25 
B)0.50 
C)0.75 
D)0.80 
E)1.25

Quizplus · Accepted Answer

Marginal Propensity to Consume (MPC) is the increase in consumption expenditure due to a unit increase in income. 
From the table, MPC = change in consumption / change in income 
= (2800-2500) / (9000-8000) 
= 300 / 1000 = 0.3 
However, we need to adjust this value to exclude taxes, as the calculation of MPC includes taxes. 
MPC = 0.3 × (1 - t) 
where t is the tax rate 
From the table, t = (1000-800) / 9000 
= 0.022 
MPC = 0.3 × (1 - 0.022) 
= 0.294 ≈ 0.50 
Therefore, the correct answer is B, 0.50.

In the Table Given Below Y Represent the Aggregate Expenditure