If the marginal propensity to save is 0.1, then a $10 million decrease in disposable income will
A)increase consumption by $9 million.
B)increase consumption by $1 million.
C)decrease consumption by $9 million.
D)decrease consumption by $1 million.
E)leave consumption unchanged.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) is 0.1, meaning that for every dollar of income, 0.1 is saved and 0.9 is spent. A $10 million decrease in disposable income would decrease consumption by $9 million (90% of $10 million), as less income leads to less spending.

If the Marginal Propensity to Save Is 0