Question

Read the following statements carefully:
Statement 1: Marginal Propensity to Consume (MPC) refers to the consumption per unit of income.
Statement 2:As the income increases, the proportionate increase in the level of consumption is always more than the increase in the level of 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:

Remember: As income rises, people tend to save more, so the increase in consumption is proportionally less than the increase in income.

Answer 1

The Correct Option is A

Statement 1 is true. The Marginal Propensity to Consume (MPC) quantifies the increase in consumption resulting from an additional unit of income.
Statement 2 is false. Keynesian consumption theory posits that as income increases, consumption rises proportionally less than income, as individuals tend to save a portion of their additional earnings.