If the marginal propensity to consume is 0.25, it would mean that:
A) $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.
B) $0.25 of an additional $1 of individuals' after-tax income is saved.
C) $0.75 of an additional $1 of individuals' after-tax income is spent on consumption.
D) None of these are true.

Question

Quizplus · Accepted Answer

Marginal propensity to consume (MPC) refers to the portion of an additional dollar of income that is spent on consumption. Therefore, if the MPC is 0.25, it means that $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.

If the Marginal Propensity to Consume Is 0