If the marginal propensity to consume is ________, then a $2 trillion increase in disposable income increase consumption expenditure by $1.2 trillion. If the marginal propensity to consume is ________, then a $2 trillion increase in disposable income increases consumption expenditures by $1.6 trillion
A) 0.6; 0.8
B) 1.2; 1.6
C) 1.67; 2.25
D) 6.0; 8.0
E) 0.6; 0.8.

Question

Quizplus · Accepted Answer

The formula for calculating the change in consumption expenditure is marginal propensity to consume (MPC) multiplied by the change in disposable income. Using the given values, we can set up two equations:

1.2 trillion = 0.6 * 2 trillion
1.6 trillion = 0.8 * 2 trillion

Solving for the MPC in each equation, we get:

MPC = 0.6
MPC = 0.8

Therefore, the answer is choice letter A.

If the Marginal Propensity to Consume Is ________, Then a $2