Question

Marginal Propensity to Consume (MPC) exhibits the slope of ............ function.
(Choose the correct option to fill in the blank)

• A. Saving
• B. Consumption
• C. Production
• D. Cost

Hint:

MPC shows how much extra consumption happens with extra income — it’s the slope of the consumption line in Keynesian economics. If MPC = 0.8, it means 80% of additional income is spent on consumption.

Answer 1

The Correct Option is B

Marginal Propensity to Consume (MPC) measures how much consumption changes with a change in income. It is defined as: \[ MPC = \frac{\Delta C}{\Delta Y} \] Where: - \( \Delta C \) is the change in consumption, - \( \Delta Y \) is the change in income. This ratio reflects the responsiveness of consumption to income, and hence, MPC is the slope of the consumption function. The consumption function shows the relationship between income and consumption, generally written as: \[ C = C_0 + MPC \cdot Y \] In this function: - \( C_0 \) is autonomous consumption (when income is zero), - \( MPC \cdot Y \) represents induced consumption (changes with income). The slope of this linear function — which is MPC — tells us how much additional consumption is generated by an additional unit of income. Thus, the correct functional relationship is with the Consumption function. Options like production and cost (Options C and D) are unrelated, and the saving function is governed by Marginal Propensity to Save (MPS), not MPC.