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: The Marginal Propensity to Consume (MPC) is defined as the change in consumption divided by the change in income, representing the consumption generated by each unit of income.
Statement 2 is false: In practice, the proportion of income spent on consumption tends to decrease as national income grows, indicating a falling MPC with rising income.