If the average propensity to consume is initially 1.0, the marginal propensity to consume is 0.75, and real disposable income increases by $1000, the new value of saving is
A) 0.
B) $250.
C) $750.
D) $1000.

Question

Quizplus · Accepted Answer

When the average propensity to consume is 1.0, all income is consumed, so initial saving is $0. With a marginal propensity to consume of 0.75, $750 of the additional $1000 income is consumed, leaving $250 as saving.

If the Average Propensity to Consume Is Initially 1