If there is a rise in income from Rs 40,000 to Rs 50,000, consumption increases from Rs 22,000 to 30,000, then what will be the MPC?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: 0.8
MPC refers to the ratio of change in consumption expenditure to change in income. The value of MPC lies between 0 and 1.
MPC = \(\frac{ΔC }{ΔY }\)
MPC = \(\frac{30,000 - 22,000}{50,000 - 40,000 }\)
MPC = \(\frac{8,000 }{10,000 }\)
MPC = 0.8