Question : The marginal propensity to consume (MPC) is 0.9. If disposable income increases by INR 2,000, what will be the increase in consumption?
Option 1: INR 1,800
Option 2: INR 1,600
Option 3: INR 2,000
Option 4: INR 2,200
Correct Answer:
INR 1,800
Solution : The correct answer is (A) INR 1,800
The marginal propensity to consume (MPC) represents the change in consumption resulting from a change in disposable income. In this case, the MPC is given as 0.9.
To calculate the increase in consumption resulting from a change in disposable income, we can multiply the change in disposable income by the MPC.
Given: MPC = 0.9
Change in disposable income = INR 2,000
Increase in consumption = MPC * Change in disposable income
Increase in consumption = 0.9 * 2000
Increase in consumption = 1800
Therefore, the increase in consumption is INR 1,800.
