ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Then, each time income rises by $1, 000, consumption rises by $800, because in this example, the marginal propensity to consume is 0.8.

Detailed explanation-2: -An increase of consumption raises GDP by the same amount, other things equal. Moreover, since current income (GDP) is an important determinant of consumption, the increase of income will be followed by a further rise in consumption: a positive feedback loop has been triggered between consumption and income.

Detailed explanation-3: -A change in the marginal propensity to consume will change the slope of the consumption function. An increase in the MPC steepens the consumption function; a decrease in the MPC flattens it.

Detailed explanation-4: -The correct answer is rate of change of consumption as income changes. Marginal propensity to consume refers to the change in consumption with respect to the change in income. When there is an increase in income it reflects in better purchasing power of a consumer.