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 less than the full increase in income.
B)rise by more than the increase in income.
C)remain constant, because the MPC is also constant.
D)fall, as an increase in income will increase saving.
E)rise by the full increase in income.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) of 0.9 means that for every additional dollar of income, consumption increases by 90 cents. Therefore, consumption rises by less than the full increase in income.

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