Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars. Refer to the above data.Suppose that consumption increased by $2 billion at each level of DI in each of the three countries.We can conclude that the:
A)marginal propensity to consume will remain unchanged in each of the three countries.
B)marginal propensity to consume will decline in each of the three countries.
C)average propensity to save will fall at each level of DI in each of the three countries.
D)marginal propensity to save will rise in each of the three countries.

Question

Following is consumption schedules for three private closed economies.DI signifies disposable income and C represents consumption expenditures.All figures are in billions of dollars.  Refer to the above data.Suppose that consumption increased by $2 billion at each level of DI in each of the three countries.We can conclude that the:
A)marginal propensity to consume will remain unchanged in each of the three countries. 
B)marginal propensity to consume will decline in each of the three countries. 
C)average propensity to save will fall at each level of DI in each of the three countries. 
D)marginal propensity to save will rise in each of the three countries.

Quizplus · Accepted Answer

Since consumption increases by the same amount at each level of disposable income in each country, the marginal propensity to consume (MPC) will remain unchanged. The MPC is the fraction of each additional dollar of disposable income that is spent on consumption, and it is calculated as the change in consumption divided by the change in disposable income. Since the change in consumption is the same at each level of DI, the MPC will not change. Therefore, option A is the correct answer. Option B is incorrect because the MPC is not expected to decline in this scenario. Option C is incorrect because the increase in consumption implies a decrease in the average propensity to save. Option D is also incorrect because the MPC is expected to remain unchanged, and therefore the marginal propensity to save will also remain unchanged.

Following Is Consumption Schedules for Three Private Closed Economies