Question

define the marginal propensity to consume (MPC). Do you think the MPC has risen or fallen since the start of the COVID-19 pandemic? Explain your reasoning.

Answer 1

Marginal Propensity to Consume (MPC) means percentage of change in income spent on additional consumption. Increase is MPC signifies consumers are more consident in the economy hence are consuming more as opposed to saving extra income generated.

During the time of COVID-19, there has been an uncertainity about future economic outlook which willl cause consumers to spend less and save more so as to insure them against adverse outcomes of this crisis. Hence it can be said that MPC must have decreased because of increased savings.

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