Suppose the MPC in an economy is 0.9.The APC is initially 0.95 and disposable income is $4 billion.If disposable income increases to $14 billion,what is the new level of consumption?
A)$13.3 billion.
B)$12.8 billion.
C)$9 billion.
D)$12.6 billion.

Question

Quizplus · Accepted Answer

The change in disposable income is $10 billion ($14 billion - $4 billion). With an MPC of 0.9, the change in consumption is $9 billion (0.9 * $10 billion). Initial consumption is $3.8 billion (0.95 * $4 billion). Therefore, the new level of consumption is $12.8 billion ($3.8 billion + $9 billion).

Suppose the MPC in an Economy Is 0