Question

Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a result, the consumption expenditure rises from ₹ 4,000 crores to ₹ 4,600 crores. Marginal propensity to consume in such a case would be __________.

Options

• 0.8

• 0.4

• 0.2

• 0.6

Answer 1

Suppose in a hypothetical economy, the income rises from ₹ 5,000 crores to ₹ 6,000 crores. As a result, the consumption expenditure rises from ₹ 4,000 crores to ₹ 4,600 crores. The marginal propensity to consume in such a case would be 0.6.

Explanation:

MPC = `(Delta"C")/(Delta"Y") = 600/(1,000) = 0.6`