If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax disposable income leads to a ______ increase in consumption.
A) $13.33
B) $25
C) $75
D) $133

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) represents the fraction of additional income that consumers spend on goods and services. An MPC of 0.75 means that consumers spend 75% of any additional disposable income they receive. Therefore, for every $100 increase in after-tax disposable income, consumers will increase their spending (consumption) by $75 (0.75 x $100).

If the Marginal Propensity to Consume Equals 0