Final answer:
The most important determinant of consumption is current disposable income. An increase in unemployment would cause saving to increase. With an MPC of 0.9, an increase of $100 billion of disposable income would result in an additional consumption of $90 billion.
Step-by-step explanation:
The most important determinant of consumption is current disposable income. When disposable income increases, people have more money available to spend on consumption, leading to an increase in consumption expenditures.
An increase in unemployment, A would cause saving to increase because people would be more cautious about spending and would save more. An increase in consumption, B, would not cause saving to increase because consumption and saving are opposite choices. An increase in the price level, C, would lead to a decrease in consumption as goods become more expensive. An increase in the interest rate, D, would also lead to a decrease in consumption as borrowing becomes more expensive.
If the marginal propensity to consume (MPC) is 0.9, then for every additional dollar of disposable income, 90 cents will be spent on consumption. Therefore, with an increase of $100 billion of disposable income, the additional consumption would be $90 billion. Answer choice A is correct.