Question:
As income level increases from Rs. 5000 to Rs. 10000, consumption expenditure increases from Rs. 7000 to Rs. 11 000. The marginal propensity to consume is equal to
(1) 0.8.
(2) 0.9.
(3) 1.0.
(4) 1.2.
(5) 1.4.
Correct Answer:
(1)
Answer Explanation:
The Marginal Propensity to Consume (MPC) measures the proportion of additional income that is spent on consumption. Formula: MPC = (Change in Consumption) / (Change in Income). Change in C = $11000 – 7000 = 4000$. Change in Y = $10000 – 5000 = 5000$. MPC = $4000 / 5000 = 0.8$.
Topic: Consumption Theory Year: 2018
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