If the average marginal propensity to consume is 0.75, then a $1 million increase in total income will lead to a _____ in consumption.
A)$250,000 increase
B)$75,000 increase
C)$750,000 decrease
D)$750,000 increase

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the fraction of an increase in income that is spent on consumption. If the average marginal propensity to consume is 0.75, then for every $1 increase in income, $0.75 will be spent on consumption, leading to a $750,000 increase in consumption for a $1 million increase in income. Therefore, the correct answer is D.

If the Average Marginal Propensity to Consume Is 0