Question

The rate of increase in ex-ante consumption due to a unit increment in income is called?

• A. Marginal Propensity to Consume.
• B. Average Propensity to Consume.
• C. Autonomous Consumption.
• D. Aggregate Consumption.

Hint:

\(MPC = \frac{\Delta C}{\Delta Y}\) (Slope of consumption curve).
\(APC = \frac{C}{Y}\) (Ratio of total values).
\(MPC + MPS = 1\).

Answer 1

The Correct Option is A

Concept:
In Keynesian macroeconomic theory, aggregate consumption expenditure varies systematically with levels of aggregate disposable income.
The rate at which consumption responds to variations in income is an essential behavioral parameter.

Step 1: Defining Marginal Propensity to Consume (MPC):
The Marginal Propensity to Consume (denoted as \(MPC\) or \(b\) or \(c\)) measures the change in planned (ex-ante) consumption expenditure resulting from a unit change in national income: \[ MPC = \frac{\Delta C}{\Delta Y} \] Because individuals typically consume a fraction of an additional unit of income and save the rest, \(MPC\) satisfies: \[ 0 < MPC < 1 \]

Step 2: Evaluating Alternative Options:
- Average Propensity to Consume (APC) is the ratio of total consumption to total income (\(C/Y\)).
- Autonomous Consumption (\(\bar{C}\)) is the baseline consumption expenditure that occurs when income is zero.
- Aggregate consumption represents the total expenditure on consumer goods in the economy.
Final Answer:
The rate of increase in consumption per unit increment in income is the Marginal Propensity to Consume. Thus, option (A) is correct.