Suppose twenty years from now our disposable income rises from $30 trillion to $31 trillion.What would your best guess be as to how much consumption will rise?

Question

Quizplus · Accepted Answer

Given the marginal propensity to consume (MPC) is typically less than 1, an increase in disposable income leads to an increase in consumption but not by the entire amount of the income increase. If we assume an MPC of around 0.9 (which is a common assumption), a $1 trillion increase in income would lead to a $0.9 trillion or $900 billion increase in consumption. However, since $950 billion is the closest option provided, it's the best guess.

Suppose Twenty Years from Now Our Disposable Income Rises from $30