Question : The marginal propensity to consume (MPC) is the proportion of an additional:
Option 1: Income that is saved
Option 2: Income that is consumed
Option 3: Investment that is made
Option 4: Government expenditure that is incurred
Correct Answer:
Income that is consumed
Solution : The correct answer is (b) Income that is consumed.
The MPC represents the fraction of an increase in income that individuals or households choose to spend on consumption. It indicates how much of each additional dollar of income is allocated to consumption rather than saving.
The MPC is an important concept in economics as it influences the multiplier effect and the overall impact of changes in autonomous expenditures on aggregate demand and economic growth. A higher MPC implies a larger proportion of income being spent on consumption, leading to a greater increase in aggregate demand and a stronger multiplier effect.
