Question

Assume the MPC is 0.6. If government were to impose $10 billion of new taxes on household income, consumption spending would initially decrease by

Answer 1

$6 billion

Step-by-step explanation:

Calculation to determine what consumption spending would initially decrease by

Using this formula

Decrease in Consumption spending=MPC * New taxes on household income

Let plug in the formula

Decrease in Consumption spending=0.6*$10 billion

Decrease in Consumption spending=$6 billion

Therefore consumption spending would initially decrease by $6 billion