Assume that consumption in the United States is $9,000 billion in 2009.If the MPC is 0.8 and disposable income increases by $1,000 billion in 2010, then the level of consumption in 2010 will be
A)$10,000 billion.
B)$9,800 billion.
C)$9,000 billion.
D)$7,200 billion.

Question

Quizplus · Accepted Answer

The increase in disposable income of $1,000 billion will result in an increase in consumption by MPC*ΔY = 0.8*$1,000 billion = $800 billion. Therefore, the level of consumption in 2010 will be $9,000 billion + $800 billion = $9,800 billion. Thus, the correct answer is option B.

Assume That Consumption in the United States Is $9,000 Billion