If the marginal propensity to consume was 0.75, it would mean that:
A) $0.75 of an additional $1 of individuals' after-tax income is spent on consumption.
B) $0.75 of an additional $1 of individuals' after-tax income is saved.
C) $0.25 of an additional $1 of individuals' after-tax income is spent on consumption.
D) None of these is true.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of a change in income that is spent on consumption. Therefore, an MPC of 0.75 means that for every additional $1 of after-tax income, $0.75 is spent on consumption and $0.25 is saved.

If the Marginal Propensity to Consume Was 0