If the MPC is 0.95, then a $12 million increase in disposable income will:
A)increase saving by $11.4 million.
B)increase saving by $0.6 million.
C)increase consumption by $6 million.
D)increase consumption by $950 million.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 0.95, meaning 95% of additional income is spent on consumption. Therefore, 5% (1 - 0.95) is saved. A $12 million increase in income will increase saving by 0.05 * $12 million = $0.6 million.

If the MPC Is 0