Question

If the consumption function is c = $200 billion + 0.9y, note: some values are in 'trillions' and others are in 'billions'. (a) what is the mpc?

Answer 1

Given that the consumption function is C = $200 billion + 0.9y,

The marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers).

The marginal propensity to consume (MPC) is equal to ΔC / ΔY, where ΔC is change in consumption, and ΔY is change in income. It reprecents the slope of the consumption function.

Therefore, the MPC is 0.9.