Consider a hypothetical economy. The income in the economy rose from 4000 to 5000 and as a result consumption expenditure rose from 3500 to 4000. What will be the value of Marginal Propensity to Consume?
Answer & explanation
Correct answer: option 2
The correct answer is option 2: 0.5
MPC = \(\frac {∆C}{∆Y}\)
Here,
∆C = 4000 -3500 = 500 and
∆Y = 5000-4000 = 1000
So , MPC = \(\frac {500}{1000}\)
= 0.5