If the marginal propensity to consume is equal to 0.75,then a $100 increase in disposable income leads to a _________ increase in consumption.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of additional income that is consumed. Since the MPC is 0.75, then for every $1 increase in disposable income, only $0.75 will be used for consumption. Therefore, a $100 increase in disposable income will result in a consumption increase of $75 (0.75 x $100). Choice D correctly represents the amount of consumption increase due to the increase in disposable income.

If the Marginal Propensity to Consume Is Equal to 0