A given change in disposable income would have the greatest effect on consumption with which of the following marginal propensities to consume?
A) 0.2
B) 0.4
C) 0.6
D) 0.8

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) measures the proportion of an additional dollar of income that is spent on consumption. A higher MPC means that a larger percentage of any increase in income will be spent on consumption. Hence, a higher MPC will lead to a greater effect on consumption from a given change in disposable income. Among the given choices, the highest MPC is 0.8, so D is the best choice.

A Given Change in Disposable Income Would Have the Greatest