Question

Read the following statements carefully :
Statement 1 : Marginal Propensity to Consume (MPC) exhibits the consumption per unit of income.
Statement 2 : As the national income of a country rises, the proportionate increase in the consumption is always more than the increase in the income.
In the light of the given statements, choose the correct option from the following :

• A. Statement 1 is true and Statement 2 is false.
• B. Statement 1 is false and Statement 2 is true.
• C. Both Statements 1 and 2 are true.
• D. Both Statements 1 and 2 are false.

Hint:

MPC is an important concept in Keynesian economics, indicating how much of an additional dollar of income will be spent on consumption.

Answer 1

The Correct Option is A

Statement 1 is true because Marginal Propensity to Consume (MPC) is the ratio of change in consumption to the change in income. It reflects the consumption per unit of income.
Statement 2 is false because, in reality, as national income rises, the proportionate increase in consumption generally decreases. This means the MPC tends to decline as income rises.