Question

The marginal propensity to consume (MPC) is defined as the fraction of a. total income that a household either consumes or saves. b. extra income that a household either consumes or saves. c. extra income that a household consumes rather than saves. d. total income that a household consumes rather than saves.

Answer 1

Answer:

c. extra income that a household consumes rather than saves.

Explanation:

MPC is part of the Keynesian macroeconomic theory and it is used to determine to which extent government should increase economic stimuli.

If a greater part of workers are inside the "marginal propensity to consume" then it is positive that government gives a rise in salaries, but if the majority of workers will save that extra money, then money will not be spent on consumption and money will not be returned to the Nation as taxes, more production and more employment.