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If the marginal propensity to consume equals 0.75, then a $100 increase in after-tax disposable income leads to a _____ increase in consumption.Group of answer choices$0.75$0.25$100$75$25

Question

If the marginal propensity to consume equals 0.75, then a 100 increase in after-tax disposable income leads to a _____ increase in consumption.Group of answer choices0.750.250.25100757525

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Solution

The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. If the MPC is 0.75, this means that for every additional dollar of disposable income, consumption will increase by 75 cents.

So, if after-tax disposable income increases by 100,consumptionwouldincreaseby0.75100, consumption would increase by 0.75 * 100 = $75.

Therefore, the correct answer is "$75".

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