If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion,then consumption spending will rise by
A)$ 6 billion
B)$14 billion
C)$20 billion
D)$28 billion
E)$67 billion

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) refers to the increase in consumer spending when disposable income rises. 
MPC = change in consumption / change in income
In this case, the MPC is 0.70 (or 70%). 
If income rises by $20 billion, the increase in consumption can be calculated as:
0.70 x $20 billion = $14 billion
Therefore, consumption spending will rise by $14 billion. 
The correct answer is B.

If the Marginal Propensity to Consume Is Equal to 0