Question

Suppose two successive levels of disposable personal income increases from $16 to $21 billion and the change in consumption spending between these two levels of disposable personal income is $2 billion, then the MPC will equal _____.

Answer 1

Answer: 0.4

Explanation: MPC, that is, marginal propensity to consume is used to quantify the consumption induced. As we know that, MPC is calculated as follows :-

$MPC\:=\:\frac{Chane\:in\:consumer\:spending}{change\:in\:income}$

$MPC\:=\:\frac{2}{21-16}$

$MPC\:=\:\frac{2}{5}$

                 = 0.4