If the average propensity to consume is initially 0.8, the marginal propensity to consume is 0.75, and real disposable income increases by $1000, the new value of saving is
A)$200.
B)$250.
C)$800.
D)$750.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 0.75, meaning that for every additional dollar of income, $0.75 is spent and $0.25 is saved. With a $1000 increase in income, savings increase by $1000 * (1 - 0.75) = $250.

If the Average Propensity to Consume Is Initially 0