If the MPC is 0.95, then a $10 million increase in disposable income will
A)increase consumption by $200 million.
B)increase consumption by $9.5 million.
C)decrease consumption by $105 million.
D)increase consumption by $950 million.
E)increase consumption by 0.5 million.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of additional income that is spent on consumption. If the MPC is 0.95, then for every dollar increase in disposable income, consumption will increase by 95 cents. Therefore, a $10 million increase in disposable income will increase consumption by 0.95 * $10 million = $9.5 million.

If the MPC Is 0