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

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