Question

If the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

Multiple Choice
a. MPS has increased.
b. MPC has increased.
c. income has increased.
d. income has decreased.

Answer 1

An increase in the slope of the consumption schedule signifies that the marginal propensity to consume (MPC) has increased.

Step-by-step explanation:

If the slope of a linear consumption schedule increases in a private closed economy, then it indicates that the marginal propensity to consume (MPC) has increased. This is because the MPC reflects the share of an additional dollar of income that is spent on consumption.

Since the slope represents the change in consumption relative to the change in income, a steeper slope implies a higher consumption rate from each additional dollar of income, reducing the marginal propensity to save (MPS). Remember that the MPC and MPS must always add up to one, so if the MPC increases, the MPS must decrease correspondingly.