If the MPC equals 0.75, then
A) for every $100 increase in consumption, real Gross Domestic Product (GDP) increases by $75.
B) consumption is always more than real Gross Domestic Product (GDP).
C) for every $100 increase in real Gross Domestic Product (GDP), saving increases by $75.
D) for every $100 increase in real Gross Domestic Product (GDP), saving increases by $25.

Question

Quizplus · Accepted Answer

The Marginal Propensity to Consume (MPC) is the fraction of an additional dollar of income that is spent on consumption. If MPC is 0.75, this means that 75% of any increase in income will be spent, and the remaining 25% will be saved. Therefore, for every $100 increase in real GDP, which can be considered as an increase in income, $75 is spent (consumed) and $25 is saved.

If the MPC Equals 0.75, Then