If real disposable income increases by $1500, consumption expenditures will

Question

Quizplus · Accepted Answer

The relationship between real disposable income and consumption expenditures is measured by the marginal propensity to consume (MPC), which is the fraction of a change in income that is consumed. The MPC is typically less than one, meaning that not all additional income is spent on consumption. Therefore, if real disposable income increases by $1500, consumption expenditures will likely increase by less than $1500, reflecting a lower MPC.

If Real Disposable Income Increases by $1500, Consumption Expenditures Will