To calculate the marginal propensity to consume (MPC), we use the formula:
\[ \text{MPC} = \frac{\Delta C}{\Delta Y} \]
where:
- \(\Delta C\) is the change in consumption, and
- \(\Delta Y\) is the change in income.
Given:
- Initial Income (Y1) = R20,000
- New Income (Y2) = R23,000
- Initial Consumption (C1) = R18,000
- New Consumption (C2) = R20,000
First, calculate the changes:
- \(\Delta C = C2 - C1 = 20,000 - 18,000 = 2,000\)
- \(\Delta Y = Y2 - Y1 = 23,000 - 20,000 = 3,000\)
Now, apply the values to the MPC formula:
\[ \text{MPC} = \frac{2,000}{3,000} = \frac{2}{3} \approx 0.67 \]
Therefore, the marginal propensity to consume is 0.67. The correct answer is:
marginal propensity to consume is 0.67.