If the marginal propensity to consume is ________,then a $2 trillion increase in disposable income increases consumption expenditure by $1.2 trillion.If the marginal propensity to consume is ________,then a $2 trillion increase in disposable income increases consumption expenditures by $1.6 trillion.
A)1.67;2.25
B)1.2;1.6
C)0.6;0.8
D)6.0;8.0
E)None of the above because a $2 trillion increase in disposable income always leads to a $2 trillion increase in consumption expenditure.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of additional income that is spent on consumption. If MPC is 0.6, then 60% of the $2 trillion increase in income is spent, resulting in $1.2 trillion in consumption. If MPC is 0.8, then 80% of the $2 trillion increase is spent, resulting in $1.6 trillion in consumption.

If the Marginal Propensity to Consume Is ________,Then a $2