Which of the following best describes the marginal propensity to consume (MPC)?

• A. The fraction of income saved rather than consumed
• B. The fraction of an additional dollar of income that is spent on consumption
• C. The total amount of income spent on consumption
• D. The change in total consumption resulting from a change in price

Answer: (B)

Verified step by step guidance

1. Understand that the marginal propensity to consume (MPC) measures how much consumption changes when income changes by one unit.
2. Recall the definition: MPC is the fraction of an additional dollar of income that is spent on consumption rather than saved.
3. Express MPC mathematically as \(\text{MPC} = \frac{\Delta C}{\Delta Y}\), where \(\Delta C\) is the change in consumption and \(\Delta Y\) is the change in income.
4. Recognize that MPC is not about total consumption or saving, but specifically about the proportion of extra income used for consumption.
5. Use this understanding to identify the correct description: 'The fraction of an additional dollar of income that is spent on consumption.'