The income of an economy rises from Rs 500 crore to Rs 1,000 crore, and as a result the consumption expenditure rises from Rs 500 crore to Rs 600 crore. What is the marginal propensity to consume?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 0.2
Given:
Income rises from Rs 500 crore to Rs 1,000 crore, so ΔY = Rs 500 crore
Consumption rises from Rs 500 crore to Rs 600 crore, so ΔC = Rs 100 crore
The MPC is the change in consumption per unit change in income.
\( \displaystyle MPC = \frac{\Delta C}{\Delta Y} = \frac{100}{500} = 0.2 \)
NCERT (2026-27): “Some Definitions Marginal propensity to consume (MPC): it is the change in consumption per unit change in income. It is denoted by c and is equal to ΔC/ΔY.” |