The income of an individual increases from N150 to N250 and his consumption rate increases from N100 to N150. Calculate the Marginal Propensity to Consume
A. 2 B. 0.4 C. 1 D. 0.5
Correct Answer: D
Explanation
The Marginal Propensity to Consume (MPC) is the additional amount consumed as a fraction of additional disposable income. Initial income = N150. New income = N250. Change in income = N250 – N150 = 100 Initial consumption = N100 New consumption = N150. Change in consumption = N150 - N100 = N50. MPC = Change in consumption ÷ Change in income . = 50/100 = ½ MPC = 0.5
