Figure 15-2
-In the figure above, the difference between consumption levels at point A and point B is equal to
A) the long run MPC times the change in disposable income.
B) the short run MPC times the change in disposable income.
C) (Y0 - Y2) times the short run change in income.
D) the long run change in income times (Y0 - Y

Question

Figure 15-2 
-In the figure above, the difference between consumption levels at point A and point B is equal to
A) the long run MPC times the change in disposable income. 
B) the short run MPC times the change in disposable income. 
C) (Y0 - Y2) times the short run change in income. 
D) the long run change in income times (Y0 - Y

Quizplus · Accepted Answer

The difference between consumption levels at point A and point B represents the change in consumption due to a change in disposable income. In the short run, the MPC (marginal propensity to consume) is relevant, as households are assumed to adjust their consumption quickly in response to changes in income. Therefore, the difference in consumption can be calculated by multiplying the change in disposable income by the short run MPC. Option B correctly states this relationship.

Figure 15-2 -In the Figure Above, the Difference Between Consumption Levels at Consumption