If disposable income decreases from $1,800 to $1,500 and MPC = 0.75, then saving will
A) increase by $225.
B) decrease by $225.
C) increase by $75.
D) decrease by $75.

Question

Quizplus · Accepted Answer

When disposable income decreases from $1,800 to $1,500, there is a decrease of $300. With a marginal propensity to consume (MPC) of 0.75, consumers will reduce their consumption by $300 * 0.75 = $225. The remaining $75 (since $300 - $225 = $75) would have been saved, so savings decrease by $75.

If Disposable Income Decreases from $1,800 to $1,500 and MPC