Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to ________. Thus the MPC must equal ________.

Question

Quizplus · Accepted Answer

The Marginal Propensity to Consume (MPC) is calculated as the change in consumption divided by the change in disposable income. Here, disposable income increases by $1 trillion ($8 trillion - $7 trillion). If the MPC is 0.80, then the increase in consumption would be $0.8 trillion ($1 trillion * 0.80), making the new consumption $6.8 trillion + $0.8 trillion = $7.6 trillion.

Suppose Disposable Income Increases from $7 Trillion to $8 Trillion