If the marginal propensity to consume,MPC,is less than 1 and a household's disposable income increases by $2,000,the household's consumption will _____.
A)increase by less than $2,000
B)increase by $2,000
C)decrease if the total income of the household is above $100,000
D)remain the same unless the change in income significantly affects the household's wealth
E)increase by more than $2,000

Question

Quizplus · Accepted Answer

The MPC is the proportion of additional income that a household spends on consumption. If the MPC is less than 1, it means that the household does not spend all of the additional income on consumption. Therefore, if the household's disposable income increases by $2,000, their consumption will increase by less than $2,000, as they will save or invest some of the additional income.

If the Marginal Propensity to Consume,MPC,is Less Than 1 and a Household's