Chapter 21, Problem 1MCQ

To determine

The marginal propensity to consume

Answer to Problem 1MCQ

From the available options, the correct option is it represents the proportion of consumers' disposable income that is spent.

Explanation of Solution

Marginal propensity to consume shows the ability of a consumer to spent his/her income for the consumption of goods and services, therefore, it shows the proportion of consumers' disposable income which is spent by the consumer for the consumption of goods. In marginal propensity to consume there would not be a negative relationship to the spending multipliers consumers prefer to spend rather than savings. And, marginal propensity to consume is equal to the change in consumption divided by change in income.

Therefore, the correct option is c (represents the proportion of consumers' disposable income that is spent) and all other options are incorrect.

Economics Concept Introduction

Introduction: The marginal propensity to consume refers to the proportion of amount which is spent on consumption of goods and services rather than keeping the amount as savings.