If the marginal propensity to consume is 0.85, what change in consumption expenditure would you expect if disposable income increases by $200 million?
A)$20 million
B)$170 million
C)$180 million
D)$1,800 million
E)$18 million

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption expenditure divided by the change in disposable income. In this case, the MPC is 0.85 and disposable income increases by $200 million. Therefore, the change in consumption expenditure would be 0.85 * $200 million = $170 million.

If the Marginal Propensity to Consume Is 0