Suppose consumption is $10,000 when income is $9,000 and the marginal propensity to save equals 0.1. When income increases to $9,500, consumption will be:

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) + marginal propensity to save (MPS) = 1. 
Given the MPS = 0.1, MPC = 1 - MPS = 0.9. 
Therefore, when income rises by $500 ($9,500 – $9,000), consumption will increase by MPC × $500 = 0.9 × $500 = $450. 
So, the new consumption level will be $10,000 + $450 = $10,450.

Suppose Consumption Is $10,000 When Income Is $9,000 and the Marginal