Suppose the Marginal Propensity to Consume Is 0

question 107

Multiple Choice

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion.Which of the following is true?

• A) Disposable income and consumption fall by $10 billion
• B) Disposable income and consumption rise by $10 billion
• C) Disposable income rises by $10 billion and consumption rises by $8 billion
• D) Disposable income falls by $10 billion and consumption falls by $8 billion
• E) Disposable income rises by $10 billion and consumption falls by $8 billion

---

Definitions:

Cream

The top layer of milk that is richer in fat and can be skimmed off, used metaphorically to refer to the best or choicest part of something.

Marginal Utilities

Additional satisfaction derived from consuming an extra unit of a product, emphasizing the declining utility with increased consumption.

Optimal Consumption Bundle

The combination of goods and services that maximizes a consumer's utility for a given income and prices, based on their preferences.

Budget Line

A visual representation showcasing every possible pair of two products that can be bought within a specific budget.