The marginal propensity to consume is A. Options A, B and C B. ΔC/ΔY C. The slope of the consumption function D. Coefficient c in the equation C = C + cYd
Question
The marginal propensity to consume is
A. Options A, B and C B. ΔC/ΔY C. The slope of the consumption function D. Coefficient c in the equation C = C + cYd
Solution
The marginal propensity to consume (MPC) is a concept in economics that describes the increase in personal consumer spending (consumption) that occurs with an increase in disposable income (income after taxes and transfers).
Here's a step-by-step breakdown of the options:
A. Options A, B and C - This option is not valid because it refers to itself and the other options.
B. ΔC/ΔY - This is the correct definition of the marginal propensity to consume. It is the change in consumption (ΔC) divided by the change in disposable income (ΔY). If disposable income increases by $1, and that causes consumption to increase by 80 cents, then MPC is 0.8.
C. The slope of the consumption function - This is also correct. The consumption function is a graph that shows how changes in disposable income will affect consumption. The slope of this line is the marginal propensity to consume.
D. Coefficient c in the equation C = C + cYd - This is not correct. In this equation, c would represent the marginal propensity to consume, but the equation itself is not correctly formulated. The correct equation should be C = C0 + cYd, where C0 is autonomous consumption (consumption when income is zero), c is the marginal propensity to consume, and Yd is disposable income.
So, the correct answers are B and C.
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