If the marginal propensity to consume is 0.7 and if output increases by $200, then consumption spending
A) increases by $70.
B) decreases by $70.
C) increases by $140.
D) decreases by $140.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) of 0.7 means that for every additional dollar earned, 70 cents will be spent on consumption. Therefore, if output increases by $200, consumption spending will increase by 0.7 * $200 = $140. So the correct answer is (C) increases by $140.

If the Marginal Propensity to Consume Is 0