Question

The marginal propensity to consume _____________________:

1. It is the fraction of disposable income consumed

2. Plus the marginal propensity to save equals 1

3. It is the fraction of GDP consumed

4. It is the amount of disposable income consumed

Answer 1

Since the marginal propensity to consume is the additional consumption from additional disposable income.

MPC=change in consumption / change in disposable income

Marginal propensity to consume (MPC)

MPC=change in consumption / change in disposable income

Marginal propensity to save is calculated by the following formula

MPS=change in the saving/ change in the income

MPS+MPC=1

Hence it can be said that the marginal propensity to consume plus the marginal propensity to save equals 1.

Hence option 2 is the correct answer.