Question

Your friend just got an unexpected $1,000 tax refund. She plans to put $800 towards paying off credit card debt, $100 toward her student loans, and use the remaining $100 to purchase a new grill for her deck. What's your friend's marginal propensity to consume (MPC)

Answer 1

Based on the expenses that she spent on and the amount received, your friends Marginal Propensity to Consume is 0.1 or 10%.

What is her MPC?

Marginal propensity to consume can be found by the formula:
= Increase in consumption / Increase in income

The only consumption will be the $100 spent on the new grill.

MPC is:

= 100 / 1,000

= 10%

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