If the MPC = 0.9, then ignoring any multiplier effect, an increase in disposable income causes consumption expenditure to
A) rise by more than the full increase in income.
B) rise by the full increase in income.
C) fall, as increases in income will increase saving.
D) rise by less than the full increase in income.

Question

Quizplus · Accepted Answer

A high MPC of 0.9 means that for every extra dollar of disposable income, 90 cents will be spent on consumption. However, some of the income may be saved or used for taxes, so consumption will not increase by the full amount of income. Therefore, consumption will rise by less than the full increase in income.