In Keynesian macroeconomics, the marginal propensity to consume (MPC) for an economy is defined as which of the following?

Introduction / Context:
The marginal propensity to consume, usually written as MPC, is a core concept in Keynesian macroeconomics. It plays a central role in explaining how changes in income affect consumption and in determining the size of the multiplier in an economy. Examinations often test whether a student can correctly link MPC to the behaviour of the consumption schedule, which shows planned consumption at different levels of income.

Given Data / Assumptions:

• We are considering a simple closed economy with no foreign trade for ease of understanding.
• The consumption schedule relates planned consumption expenditure to different levels of disposable income.
• The savings schedule relates planned saving to different income levels and is derived from the same income values.
• MPC is defined as the change in consumption divided by the change in income, holding other factors constant.
• We assume a linear consumption function for simple diagrammatic interpretation.

Concept / Approach:
MPC measures the sensitivity of consumption to changes in income. In algebraic form, MPC = change in consumption (delta C) divided by change in income (delta Y). When we draw a consumption function with income on the horizontal axis and consumption on the vertical axis, the slope of this line is exactly delta C divided by delta Y, which is MPC. The savings schedule is related but has a different slope that corresponds to the marginal propensity to save (MPS). Therefore, the correct interpretation is that MPC is the slope of the consumption schedule, not of the savings schedule and not the reciprocal of these slopes.

Step-by-Step Solution:
Step 1: Recall that MPC = delta C / delta Y, where delta C is the change in consumption and delta Y is the change in income.Step 2: Draw a simple graph with income on the horizontal axis and consumption on the vertical axis, and plot the consumption schedule.Step 3: Observe that the slope of this line equals change in consumption divided by change in income between two points, which is MPC.Step 4: Remember that the savings schedule has a slope equal to the marginal propensity to save (MPS), which equals 1 minus MPC.Step 5: Conclude that MPC is identified with the slope of the consumption schedule, not with any reciprocal or the slope of the savings line.

Verification / Alternative check:
In standard macroeconomics texts, the consumption function is written as C = a + bY, where b represents MPC. When this function is drawn, the slope of the line is b, confirming that MPC equals the slope of the consumption schedule. The corresponding saving function is S = Y minus C, and its slope is 1 minus b, which is MPS. This confirms that the correct geometric interpretation of MPC is the slope of the consumption function, not the slope of the savings function.

Why Other Options Are Wrong:
The slope of the savings schedule measures the marginal propensity to save, not MPC, so option a is incorrect. One divided by the slope of the savings schedule, option b, does not match any standard macroeconomic coefficient. One divided by the slope of the consumption schedule, option d, also does not define MPC. The ratio of total consumption to total income over a business cycle is related to the average propensity to consume and not to the marginal propensity to consume, so option e is also incorrect.

Common Pitfalls:
Students sometimes confuse average and marginal propensities, or they mix up the slopes of the consumption and savings schedules. Another error is to think that MPC is simply a percentage without recognising its role as the slope of the consumption function. To avoid these mistakes, it helps to always link MPC back to the definition delta C divided by delta Y and remember that this is exactly the slope of the consumption schedule in an income consumption diagram.

Final Answer:
The marginal propensity to consume (MPC) is the slope of the consumption schedule showing planned consumption at different income levels.