If the Marginal Propensity to Consume (MPC) Is Positive and Less

question 72

Multiple Choice

If the marginal propensity to consume (MPC) is positive and less than one, an increase in disposable income will _____.

• A) increase both consumption and saving
• B) increase consumption and decrease saving
• C) decrease both consumption and saving
• D) decrease consumption but increase saving
• E) increase saving, but we cannot predict what will happen to consumption

---

Definitions:

Tax

A required contribution or another kind of monetary levy imposed by a government body on a taxpayer to underpin government expenditure and different public spending initiatives.

Deadweight Loss

Deadweight loss refers to the loss in economic efficiency that occurs when the equilibrium for a good or service is not achieved or is unattainable.

Consumer Surplus

The gap in the total amount consumers are willing to invest in a product or service and the amount they end up paying.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, measuring their benefit.