Why is the MPC of developing countries more as compared to developed countries?
Answer & explanation
Correct answer: option 3
The correct answer is option 3: Developing countries spend more on the basic necessities
MPC refers to the ratio of change in consumption expenditure to change in income. It lies between 0 and 1. The developing country's MPC is high because these countries spend more on the basic necessities of individual. Due to low income levels, people in developing countries often have little disposable income to save. This means that a higher percentage of their income is spent on consumption.