Find the information you're looking for at Westonci.ca, the trusted Q&A platform with a community of knowledgeable experts. Join our platform to connect with experts ready to provide accurate answers to your questions in various fields. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently.

If an initial increase in government spending of $100 billion leads to a total increase of $400 billion in income, the marginal propensity to consume in the economy is

Sagot :

Answer:

0.75

Explanation:

Government spending of $100 billion

Total increase of $400 billion in income

Multiplier = 1 / (`1 - MPC)

400 billion/100 billion = 1 / (`1 - MPC)

1 / (`1 - MPC) = 4

1 - MPC = 1/4

1 - MPC = 0.25

MPC = 1 - 0.25

MPC = 0.75

Thus, the marginal propensity to consume in the economy is 0.75.