If the average marginal propensity to consume is 0.8, then a $10 million increase in total income will lead to a _____ increase in consumption.
A)$80 million
B)$0.8 million
C)$8 million
D)$2 million

Question

Quizplus · Accepted Answer

The marginal propensity to consume is the proportion of additional income that is spent on consumption. In this case, with a marginal propensity to consume of 0.8, for every additional dollar earned, 80 cents will be spent on consumption. Therefore, a $10 million increase in total income will lead to an increase in consumption of $8 million (0.8 x $10 million). So, the correct answer is C ($8 million).

If the Average Marginal Propensity to Consume Is 0