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When disposable income increases by $100, the consumption increases by $5
When disposable income increases by $100, the consumption increases by $5. Then the marginal propensity to consume (mpc) equals: 0.5 0.05 0.01 0.95
Expert Solution
option B is correct
The marginal propensity to consume refers to change in consumer spending with change in disposable income(income after tax) of consumer.
It can be calculated by change in consumer spending devided by change in aggregate disposable income of consumer.
MPC=dC/dY
- MPC=marginal propensity to consume
- dC= Change in consumption
- dY=Change in disposable income of consumer
here, change in income is $100 and change in consumption is $5 so mpc is
MPC=$5/$100=0.05
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