If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy,then consumption spending will increase by:

A) $6 billion.
B) $14 billion.
C) $20 billion.
D) $28 billion.
E) $67 billion.

Question

alyssa nastazio · Accepted Answer

Final Answer : B, Explanation :  The marginal propensity to consume (MPC) is the fraction of additional income that is spent on consumption. In this case, the MPC is 0.70, which means that for every additional $1 of income, $0.70 is spent on consumption. Therefore, if income rises by $20 billion, consumption spending will increase by 0.70 x $20 billion = $14 billion. Therefore, the correct answer is B.

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy,then consumption spending will increase by:

A) $6 billion.
B) $14 billion.
C) $20 billion.
D) $28 billion.
E) $67 billion.

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Learning Objectives

Related questions

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy,then consumption spending will increase by:A) $6 billion.B) $14 billion.C) $20 billion.D) $28 billion.E) $67 billion.

Definitions

Learning Objectives

Learning Objectives

Related questions

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy,then consumption spending will increase by:

A) $6 billion.
B) $14 billion.
C) $20 billion.
D) $28 billion.
E) $67 billion.