If the marginal propensity to consume (MPC)is equal to 0.9,an increase in household income causes desired consumption expenditure to
A)rise by more than the increase in income.
B)rise by the full increase in income.
C)rise by less than the full increase in income.
D)fall,as an increase in income will increase saving.
E)remain constant,because the MPC is also constant.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) of 0.9 means that for every additional dollar of income, households will spend 90 cents and save the remaining 10 cents. Therefore, desired consumption expenditure rises by less than the full increase in income.

If the Marginal Propensity to Consume (MPC)is Equal to 0