Question

4. If equilibrium output rises by a total of $400 billion in response to an increase in government spending of $80 billion, what is the marginal propensity to consume?

Answer 1

Answer:

The marginal propensity to consume is 0.2

Explanation:

As we know

Marginal propensity to consume (MPC) is equal to change in consumer spending  divided by change in disposable income

Substituting the given values, we get -

Marginal propensity to consume (MPC)

$= \frac{80}{400} \\= 0.2$

The marginal propensity to consume is 0.2