If you earn additional $500 in disposable income one week for painting your neighbor's house,
A) the total of your consumption and saving will increase by more than $500.
B) the total of your consumption and saving will increase by $500.
C) the total of your consumption and saving will increase by less than $500.
D) your consumption will increase by more than $500, even if your MPS is 0.1.

Question

Quizplus · Accepted Answer

The total of your consumption and saving increases by the exact amount of the additional income, which is $500, assuming no other changes in your financial situation. This is because every dollar of income is either spent (consumption) or saved, and there's no mechanism here for leveraging or losing the initial $500 through investment or expenses directly tied to earning it.

If You Earn Additional $500 in Disposable Income One Week