Question

A worker gets a raise of $120 per month and quickly decides to spend $90 of the money on necessities and the occasional luxury, while putting the remaining $30 into retirement savings. Based on this decision, calculate the worker’s marginal propensity to consume, or MPC, as a decimal.

Answer 1

The answer is: The worker's MPC is 0.75

Step-by-step explanation:

Marginal propensity to consume (MPC) refers to the ratio of extra money earned that will be spent in the consumption of products and services, instead of saving it.

To calculate the worker's MPC we use the following equation:

Worker's MPC = $90/$120 = 0.75