Question
Download Solution PDFWhich of the following indicates the correct limit of marginal propensity to consume (MPC) ?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is 0 < MPC < 1.
Key Points
- Marginal propensity to consume:-
- It refers to the ratio of change in consumption expenditure to change in total income.
- MPC = Change in consumption (ΔC) / Change in Income (ΔY)
- The marginal propensity to consume lies between 0 to 1 as we know incremental income is either spent on consumption or saved for future use.
- If the entire income is consumed, i.e. ΔS = 0, then MPC = 1 and if entire additional income is saved, i.e. ΔC = 0, then MPC = 0.(Hence statement II is correct)
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