If entire additional income is saved then MPC is:(a). Zero (b). one(C). Infinity (d). Between 0 and 1
Question
If entire additional income is saved then MPC is:
- (a) Zero
- (b) one
- (c) Infinity
- (d) Between 0 and 1
Solution
To determine the marginal propensity to consume (MPC) when the entire additional income is saved, we need to understand the concept of MPC.
MPC represents the proportion of additional income that is spent on consumption. It is calculated by dividing the change in consumption by the change in income.
In this scenario, if the entire additional income is saved, it means that none of it is spent on consumption. Therefore, the change in consumption is zero.
When the change in consumption is zero, the MPC is also zero. This means that for every additional unit of income, none of it is spent on consumption.
Hence, the answer to the question is (a) Zero.
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