Suppose that consumption is $400 and that the marginal propensity to consume is. 8. If disposable income increases by $1200, consumption spending will increase by: (Don't feel guilty if you used a calculator here, you will able to use one on the AP exam this year!)

Consumption will increase by $960

Explanation:

Consumption Function is a function showing consumption & income relationship, signifying how consumption is dependent on income.

C = a + b. Y;

where C = Consumption; a = Autonomous consumption at 0 income level; Y = Income; b = Marginal Propensity to consume, i. e Change (addition) in consumption due to change (additional) Income = ΔC / ΔY.

MPC = ΔC / ΔY

Given : MPC = 0.8, ΔY = 1200

0.8 = ΔC / 1200

ΔC = 1200 (0.8)

ΔC [Change in Consumption] = 960