question archive Suppose that when disposable income decreases by $2,000, consumption spending increases by $1,500
Suppose that when disposable income decreases by $2,000, consumption spending increases by $1,500
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Suppose that when disposable income decreases by $2,000, consumption spending increases by $1,500. Given this information, what is the marginal propensity to consume (MPC)?
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Answer: 0.75
The MPC, marginal propensity to consume, is how much of each additional dollar earned that will be spent on consumption. In this case, disposable income has risen by $2,000 and $1,500 was spent on consumption. This means $1,500/$2,000=0.75 of each dollar earned was spent on consumption which is our MPC.
