If the average propensity to consume is 1.0, the marginal propensity to consume is 0.6, and real disposable income increases by $100, the additional saving is
A) $0.
B) $40.
C) $60.
D) $100.

Question

Quizplus · Accepted Answer

If the marginal propensity to consume (MPC) is 0.6, this means that for every additional dollar of income, 60% ($0.60) is spent and 40% ($0.40) is saved. Therefore, if real disposable income increases by $100, the additional saving would be 40% of $100, which is $40.

If the Average Propensity to Consume Is 1