An MPC of 0.80 means a $100 million transfer payment decrease:

A) Reduces consumption in the first round by $80 million.
B) Reduces consumption in the first round by $20 million.
C) Increases consumption in the first round by $20 million.
D) Increases consumption in the first round by $80 million.

ANSWER:

A) Reduces consumption in the first round by $80 million.