If Frank is a hand-to-mouth consumer and he has just received a permanent 10% increase in salary, we can expect Frank to exhibit:
A)a large change in consumption.
B)a small change in consumption.
C)a large change in saving.
D)no change in MPC.

Question

Quizplus · Accepted Answer

CA hand-to-mouth consumer typically spends most of their income on consumption due to limited financial resources. A permanent increase in salary would likely lead to a large change in consumption as Frank can afford more goods and services. Additionally, since Frank now has a higher income, he might also start saving more, leading to a large change in saving. The increase in income does not directly imply a change in the marginal propensity to consume (MPC), which is the proportion of additional income that is spent on consumption.

If Frank Is a Hand-To-Mouth Consumer and He Has Just