If net taxes were lowered from $5,000 to $1,000,the marginal propensity to consume is 0.75,and autonomous consumption spending is $10,000,by how much would consumption increase?
A) $3,000
B) $1,250
C) $7,500
D) $3,750
E) $750

Question

Quizplus · Accepted Answer

The change in consumption is equal to the change in disposable income multiplied by the marginal propensity to consume. In this case, the change in disposable income is $5,000 - $1,000 = $4,000. The marginal propensity to consume is 0.75, so the change in consumption is $4,000 * 0.75 = $3,000.

If Net Taxes Were Lowered from $5,000 to $1,000,the Marginal