Read the passage carefully and answer the questions based on the passage:

Aggregate Demand and Its Components

Consumption may denote not what people have actually consumed in a given year, but what they had planned to consume during the same period. Similarly, investment can mean the amount a producer plans to add to her inventory. It may be different from what she ends up doing. The planned values of the variables are called their ex ante measures. The most important determinant of consumption demand is household income. A consumption function describes the relation between consumption and income. The simplest consumption function assumes that consumption changes at a constant rate as income changes. Of course, even if income is zero, some consumption still takes place. Since this level of consumption is independent of income, it is called autonomous consumption. The induced component of consumption, cY shows the dependence of consumption on income.

Which of the following is not correct for marginal propensity to consume?

$0< MPC>1$

The correct answer is Option (3) → $0< MPC>1$

• MPC = 0 → Correct. It means the entire increase in income is saved, and nothing is consumed.

• MPC = 1 → Correct. It means the entire increase in income is spent on consumption.

• 0 < MPC > 1 → Incorrect. This inequality literally reads as "MPC is greater than 0 AND MPC is greater than 1." This means MPC would have to be greater than 1. An MPC > 1 implies that consumption increases by more than the increase in income. This would mean that with every additional unit of income, people are not only spending that additional unit but also reducing their savings or increasing their debt to consume even more. This is economically unsustainable and unrealistic for the overall economy in the long run.

• 0 < MPC < 1 → Correct. This means the marginal propensity to consume lies between 0 and 1, which is usually the case in real economies.