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27 March, 06:42

Suppose that consumption is $500 and that the marginal propensity to consume is 0.6. If disposable income increases by $1,000, consumption spending will increase by A. $600 B. $ 3,000 C. $1,360 D. $ 3,750 E. $1,666.67

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  1. 27 March, 10:03
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    A. $600

    Explanation:

    The formula and the computation of the Marginal propensity to consume are shown below:

    Marginal propensity to consume = Change in consumer spending : Change in disposal income

    0.6 = Change in consumer spending : $1,000

    So, the change in consumer spending is

    = $1,000 * 0.6

    = $600

    Hence, the consumption that is given in the question is not considered. Therefore, ignored it
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