If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion,consumption will increase by
A)$2,000 billion.
B)$800 billion.
C)$1,200 billion.
D)$600 billion.

Question

Quizplus · Accepted Answer

The MPC (marginal propensity to consume) is 0.60, which means that for every additional dollar of disposable income, 60 cents will be spent on consumption.

The increase in disposable income is $22,000 billion-$20,000 billion=$2,000 billion.

To find the increase in consumption, we multiply the increase in disposable income by the MPC:

$2,000 billion x 0.60 = $1,200 billion

Therefore, consumption will increase by $1,200 billion. The best choice is C.

If the MPC Is 0