Suppose in a hypothetical economy, the income rises from ₹5000 crores to ₹6000 crores. As a result, the consumption expenditure rises from ₹4000 cores to ₹4600 crores. Then what will be the marginal propensity to consume?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 0.6
MPC=Change in Consumption / Change in Income
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Change in income = ₹6000 crores – ₹5000 crores = ₹1000 crores
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Change in consumption = ₹4600 crores – ₹4000 crores = ₹600 crores
MPC = 600 /1000 = 0.6