If the marginal propensity to consume is 0.6 and consumption expenditure changes by N10 million, the equilibrium level of income will change by

Answer Details

The marginal propensity to consume (MPC) is the fraction of additional income that is spent on consumption. If the MPC is 0.6, it means that for every additional N1 of income, 60 kobo (0.6 kobo) will be spent on consumption. If consumption expenditure changes by N10 million, and the MPC is 0.6, this means that the additional income (Y) generated will be Y = (N10 million) / (1 - 0.6) = N25 million. Therefore, the equilibrium level of income will change by N25 million, which is the same as the value of the additional income generated by the change in consumption expenditure. The correct answer is option B, N25.0 million.