Which of the following changes in disposable income would lead to the greatest increase in consumption?
A)a $20,000 increase in disposable income, if MPC equals 0.5
B)a $12,000 increase in disposable income, if MPC equals 0.75
C)a $15,000 increase in disposable income, if MPC equals 0.6
D)a $30,000 increase in disposable income, if MPC equals 0.25

Question

Which of the following changes in disposable income would lead to the greatest increase in consumption?
A)​a $20,000 increase in disposable income, if MPC equals 0.5
B)​a $12,000 increase in disposable income, if MPC equals 0.75
C)​a $15,000 increase in disposable income, if MPC equals 0.6
D)​a $30,000 increase in disposable income, if MPC equals 0.25

Quizplus · Accepted Answer

The greatest increase in consumption will result from the largest increase in disposable income, combined with the highest MPC (Marginal Propensity to Consume). In this case, option A provides a $20,000 increase in disposable income, with a 0.5 MPC, meaning that $10,000 (50% of the increase) would be spent on consumption. This is higher than the other options provided.

Which of the Following Changes in Disposable Income Would Lead