nairaneesh wrote:
Please explain how C is a valid answer.
I am confused because MPC is applicable only when additional income comes in to play.
Read this line in the second paragraph - "Short-term decreases in income do not lead to reductions in consumption, because people reduce savings to stabilize consumption."
Earlier, if Income was $1000 and MPC was 0.72 (consumption 1000* 0.72 = $720), and now if the income falls to $800, the consumption remains same, then the MPC increases to 0.9 (720/800).
Hope
...
.jpg)
