Question : MPC being equal to 0.5, what will be C, if income increases by INR 100?
Option 1: 60
Option 2: 50
Option 3: 40
Option 4: 70
Correct Answer: 50
Solution : The correct answer is (b) 50
The marginal propensity to consume (MPC) of 0.5 indicates that for every additional unit of income, 0.5 units will be consumed.
Given that income increases by INR 100, we can calculate the change in consumption (ΔC) using the MPC:
ΔC = MPC * ΔY
ΔC = 0.5 * 100
ΔC = 50
Therefore, the change in consumption (ΔC) is INR 50.
To find the new level of consumption (C), we add the change in consumption (ΔC) to the initial level of consumption:
C = Initial Consumption + ΔC
If the initial consumption level is not provided, we cannot determine the exact value of C. However, if we assume that the initial consumption level is zero, then:
C = 0 + 50
C = 50
