If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy,then consumption spending will increase by:
A)$6 billion.
B)$14 billion.
C)$20 billion.
D)$28 billion.
E)$67 billion.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of additional income that is spent on consumption. In this case, the MPC is 0.70, which means that for every additional $1 of income, $0.70 is spent on consumption. Therefore, if income rises by $20 billion, consumption spending will increase by 0.70 x $20 billion = $14 billion. Therefore, the correct answer is B.

If the Marginal Propensity to Consume Is Equal to 0