What is the effect of a higher average propensity to consume (APC) on the economy?

A higher average propensity to consume (APC) indicates that consumers are spending a larger portion of their income on consumption rather than saving. This behavior directly stimulates demand for goods and services, which is a key driver of economic activity. When consumers spend more, businesses experience increased revenue, which can lead to expansion, increased production, and potentially more hiring.

The overall effect on the economy is often positive, as increased consumer spending can lead to higher levels of economic growth. This growth can be reflected in several indicators, such as Gross Domestic Product (GDP), employment rates, and business investment. As the economy grows, it can create a cycle of increased income, which further enhances consumption levels, creating a robust environment for economic development.

In contrast, other potential outcomes suggested by the other choices do not capture the relationship of higher APC with stimulating growth effectively.