The marginal propensity to consume (MPC) is a measurement in economics that represents the proportion of an additional amount of income that a household is likely to spend on goods and services as opposed to saving it. Essentially, the MPC reflects the increase in consumer spending that occurs with an increase in disposable income.
Let's review the options:
a.) the amount of additional income spent in the economy - This option aligns well with the definition of MPC. It represents the additional income that households will spend rather than save.
b.) total expenditures minus savings in an economy - This option is not the definition of MPC; instead, it is more akin to describing disposable income, which is what is available to spend or save after taxes.
c.) the amount of savings that occurs as a result of a tax increase - This is not related to MPC directly. Tax increases can affect disposable income and thus affect savings and spending, but it does not provide a definition of the marginal propensity to consume.
d.) the total expenditures in the economy - Total expenditures in the economy encompass all spending, not just that which comes from additional income, which is what MPC specifically refers to.
From these options, the correct definition of the marginal propensity to consume is:
a.) the amount of additional income spent in the economy
This statement correctly encapsulates what MPC is about, the additional or marginal amounts of consumption that happen with additional income earned.
