Economics • Economic BasicsMedium
What does the Marginal Propensity to Consume (MPC) measure in Keynesian economics?
A. The proportion of total income that is saved rather than spent
B. The change in total consumption resulting from a change in disposable income✓ Correct Answer
C. The sensitivity of private investment to changes in market interest rates
D. The total tax revenue generated from corporate earnings
💡 Solution & Explanation
Marginal Propensity to Consume is the proportion of an aggregate raise in pay that a consumer spends on goods and services rather than saving, calculated as the change in consumption divided by the change in disposable income. The sum of MPC and the marginal propensity to save equals exactly one. Fiscal multipliers are directly determined by the magnitude of the marginal propensity to consume.
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