If the MPC is 0.5, then a $10 million increase in disposable income will increase consumption by
A)$2 million.
B)$5 million.
C)$15 million
D)$50 million.
E)There is not enough information to determine the change in consumption.

Question

Quizplus · Accepted Answer

The MPC (marginal propensity to consume) is the fraction of each additional dollar of disposable income that is spent on consumption. If the MPC is 0.5, then 50% of additional income is spent on consumption. Therefore, a $10 million increase in disposable income will result in a $5 million increase in consumption (0.5 x $10 million = $5 million).

If the MPC Is 0