Question

If investment decreases by $10 billion and the MPC is 0.8 , MPₛₚₑₙ is also 0.8 , what will be the resulting decrease in the consumption component of AD?

a. $8 billion
b. $2 billion
c. $500 billion
d. $40 billion
e. None of the above

Answer 1

The resulting decrease in the consumption component of AD would be $8 billion.

Step-by-step explanation:

The resulting decrease in the consumption component of AD can be calculated by multiplying the decrease in investment by the MPC. In this case, the decrease in investment is $10 billion and the MPC is 0.8.

Therefore, the resulting decrease in the consumption component of AD would be $10 billion x 0.8 = $8 billion.