In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion decrease in taxes increases planned expenditures by $1 billion and increases the equilibrium level of income by more than $1 billion.
The Keynesian-cross model, determines the equilibrium level of real GDP by the point where the total expenditures in the economy are equal to the amount of output produced.
The MPC is the money people spend when they get an extra dollar of income. When MPC = 0.75, then a $1 billion decrease in taxes increases planned expenditures by $1 billion and increases the equilibrium level of income by more than $1 billion.
Hence, the Keynesian-cross model explains the MPC.
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