A given change in disposable income would have the greatest effect on aggregate demand 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

A higher marginal propensity to consume means that individuals are more likely to increase their spending in response to a change in disposable income. A marginal propensity to consume of 0.8 indicates that for every additional dollar of disposable income, individuals will spend 80 cents. As a result, a given change in disposable income will have a greater impact on aggregate demand with a higher marginal propensity to consume.

A Given Change in Disposable Income Would Have the Greatest