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

Question

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

Quizplus · Accepted Answer

The smaller the marginal propensity to consume (MPC), the smaller the effect a change in disposable income has on aggregate demand. An MPC of 0.2 indicates that for every additional dollar of disposable income, only 20 cents will be spent, while the remaining 80 cents will be saved or used to pay off debt. Therefore, a given change in disposable income would have the smallest effect on aggregate demand with an MPC of 0.2.

A Given Change in Disposable Income Would Have the Smallest