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

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is defined as the change in consumption (ΔC) divided by the change in disposable income (ΔY). Therefore, if the MPC is 0.5 and disposable income decreases by $10,000, we can calculate the change in consumption as follows:
ΔC = MPC x ΔY
ΔC = 0.5 x (-$10,000)
ΔC = -$5,000
Therefore, consumption spending will decrease by $5,000. The correct answer is D.

If the Marginal Propensity to Consume Is 0