Question

Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. the value of the mpc is

Answer 1

The marginal propensity to consume (MPC) is the the change in consumption divided by change in income. Where change in in consumption = $50B and change in income = $200B. So we have 50/200 =1/4 = 0.25. So the MPC is $250M