Question

Assume that autonomous consumption equals $200 and disposable income equals $1000. If total consumption equal $800, then the mpc equals ________ .

Answer 1

Answer:

The MPC is 0.6

Explanation:

Marginal propensity to consume (MPC): It means that if consumer spending increases than its income also increase which shows a direct relationship.

The formula to compute the MPC is shown below:

= Change in the consumption ÷ change in income

where,  

Change in the consumption equals to

= Total consumption - autonomous consumption

= $800 - $200

= $600

And, the disposable income is $1,000

Now put these values to the above formula

So, the answer would be equal to

= $600 ÷ $1,000

= 0.6