When Jack's income increases by $1,000,he spends an additional $850 dollars.This implies that his marginal propensity to consume is 0.85.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the fraction of additional income that a person spends, and in this case, we are told that Jack spends $850 out of the $1,000 increase in income. Therefore, his MPC is 850/1000 = 0.85, which is confirmed by the statement in the question. Thus, the answer is A.

When Jack's Income Increases by $1,000,he Spends an Additional $850