The marginal propensity to consume equals the:A) proportion of consumer spending as a function of aggregate disposable income. B) change in savings divided by the change in aggregate disposable income. C) ratio of the change in consumer spending to the change in aggregate disposable income.

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Zaid

Business

21 July, 03:47

The marginal propensity to consume equals the:A) proportion of consumer spending as a function of aggregate disposable income. B) change in savings divided by the change in aggregate disposable income. C) ratio of the change in consumer spending to the change in aggregate disposable income.

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Ruby Hicks · Answer 1

Answer: C) ratio of the change in consumer spending to the change in aggregate disposable income.

The marginal propensity to consume measures what proportion would a person spend on consumption if their disposable income changed.

For eg If a persons disposable income increases by $10,000 and they spend $9000 of it on consumption then their Marginal propensity to consume is 9000/10,000 = 9/10 = 0.9. This means that they will spend 90% of the change in disposable income on consumption.