Question : The marginal propensity to consume (MPC) is defined as the:
Option 1: Change in consumption divided by the change in income
Option 2: Change in income divided by the change in consumption
Option 3: Change in saving divided by the change in consumption
Option 4: Change in consumption divided by the change in saving
Correct Answer:
Change in consumption divided by the change in income
Solution : The correct answer is (a) Change in consumption divided by the change in income
The marginal propensity to consume (MPC) represents the proportion of an additional unit of income that is spent on consumption. It measures the change in consumption expenditure resulting from a change in income.
Mathematically, the MPC is calculated by dividing the change in consumption (ΔC) by the change in income (ΔY):
MPC = ΔC / ΔY
By dividing the change in consumption by the corresponding change in income, the MPC indicates how much additional consumption is generated for each additional unit of income received.
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