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?

Question

Quizplus · Accepted Answer

Given, marginal propensity to consume (MPC) = 90%
MPC = Change in Consumption / Change in Income
Therefore, Change in Consumption = MPC x Change in Income
Change in Income = $1000
Change in Consumption = 0.9 x $1000 = $900
Therefore, Sam's consumption will increase by $900.

Assume That Sam's Marginal Propensity to Consumer Is 90