If the MPC

Question

If the MPC < 1 and a household's disposable income increases by $2,000,the household's consumption will
A)increase by less than $2,000
B)increase by $2,000
C)decrease if the family was wealthy before the income change
D)remain the same unless the change in income significantly affects the household's wealth
E)remain the same

Quizplus · Accepted Answer

If the MPC is less than 1, it means that the household will not spend the entire $2,000 increase in income on consumption. Instead, they will save a portion of it. The exact amount they will spend depends on their MPC, which is less than 1, so they will spend less than the $2,000 increase in income.

If the MPC < 1 and a Household's Disposable Income