Assume that Sam's marginal propensity to consumer is 90%. How much will his consumption increase this year when he receives his raise of $1000?
A) $90
B) $900
C) $1000
D) $100

Question

Quizplus · Accepted Answer

Marginal propensity to consume (MPC) is the fraction of additional income that a consumer spends on consumption. 
In this case, Sam's MPC is 90%. This means that for every additional dollar he earns, he will spend 90 cents on consumption. 
Therefore, when he receives his raise of $1000, his consumption will increase by 90% of $1000 which is $900.

Assume That Sam's Marginal Propensity to Consumer Is 90