Asked by sonia umezurike on May 07, 2024
Verified
If the marginal propensity to consume,MPC,is less than 1 and a household's disposable income increases by $2,000,the household's consumption will _____.
A) increase by less than $2,000
B) increase by $2,000
C) decrease if the total income of the household is above $100,000
D) remain the same unless the change in income significantly affects the household's wealth
E) increase by more than $2,000
Marginal Propensity
A measure of how much an individual's consumption changes with a change in income.
Disposable Income
The cash reserves left for households to spend and save after paying income taxes.
- Comprehend the dynamics between changes in earnings and their influence on savings and expenditure.
Verified Answer
AG
Araceli GonzalezMay 10, 2024
Final Answer :
A
Explanation :
The MPC is the proportion of additional income that a household spends on consumption. If the MPC is less than 1, it means that the household does not spend all of the additional income on consumption. Therefore, if the household's disposable income increases by $2,000, their consumption will increase by less than $2,000, as they will save or invest some of the additional income.
Learning Objectives
- Comprehend the dynamics between changes in earnings and their influence on savings and expenditure.