Suppose the MPC is 0.8 in Canada and the MPC is 0.55 at Home. If income increases by $100 million in Canada, then the increase in consumption of domestic goods will be:
A) $25 million.
B) $80 million.
C) $55 million.
D) $35 million.

Question

Quizplus · Accepted Answer

MPC (marginal propensity to consume) represents the proportion of additional income that will be spent on consumption. 
In Canada: 
∆C = MPC x ∆Y 
∆C = 0.8 x $100 million 
∆C = $80 million

In Home: 
∆C = MPC x ∆Y 
∆C = 0.55 x $100 million 
∆C = $55 million

Therefore, the increase in consumption of domestic goods in Canada will be $80 million, and in Home it will be $55 million.

Suppose the MPC Is 0