Which of the following statements is/are correct about the Marginal Propensity to Consume (MPC)?

1. The Marginal Propensity to Consume is the proportion of an increase in income that gets spent on consumption.

2. MPC varies by income level and is typically higher at higher incomes.

Select the correct answer using the code given below:

In economics, the Marginal Propensity to Consume (MPC) is defined as the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. The Marginal Propensity to Consume is a component of the Keynesian Macro-economic Theory and is calculated as the change in consumption divided by the change in income. MPC is depicted by a consumption line, which is a sloped line created by plotting the change in consumption on the vertical “y” axis and the change in income on the horizontal “x” axis.

In brief

• The Marginal Propensity to Consume is the proportion of an increase in income that gets spent on consumption.
• MPC varies by income level. MPC is typically lower at higher incomes.
• MPC is the key determinant of the Keynesian multiplier, which describes the effect of increased investment or government spending as an economic stimulus.