If the marginal propensity to consume is 0.5 and disposable income increases by $10,000,by how much will consumption spending increase?
A) $10,000
B) $500
C) $50
D) $5,000
E) $9,524

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) of 0.5 means that for every additional dollar of disposable income, 50 cents will be spent on consumption. Therefore, if disposable income increases by $10,000, consumption spending will increase by 0.5 x $10,000 = $5,000. This makes choice D the correct answer.

If the Marginal Propensity to Consume Is 0