Question

Which of the following is true concerning the relationship between the marginal propensity to consume and the consumption function ?

Answer 1

Marginal propensity to consume is defined as the ratio of change in consumption to the change in income.

The consumption function is the relationship between spending and the factors influencing that spending.

If the spending is done by borrowing and on credit, then the marginal propensity to consume is greater than 1. If the motive of saving is higher, then marginal propensity to consume is less than 1. If all the raise in income is spent, then the marginal propensity to spend is 1.  

Suppose a person gets an increment in income of 100 bucks. If he spends the total 100 bucks, then the propensity to consume is 1. If he spends less than 100, then marginal propensity is less than 100. If he spends more than 100, then marginal propensity is greater than 1.