Suppose That When Disposable Income Increases by $2,000, Consumption Spending

question 249

Multiple Choice

Suppose that when disposable income increases by $2,000, consumption spending increases by $1,500. Given this information, we know that the marginal propensity to consume (MPC) is

• A).25.
• B).75.
• C)$1,000/$750 = 1.33.
• D)1/.25 = 4.

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Definitions:

Marginal Rate of Substitution

The rate at which a consumer is willing to substitute one good for another, maintaining the same level of utility.

Utility Function

A formula used by economists to map the degree of happiness or satisfaction one derives from consuming quantities of goods and services.

Consumption

The action of using up goods and services to satisfy needs or desires.

Income

The financial gain received by an individual or entity, usually through employment, investments, or business operations.