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

The marginal propensity to consume is 0.2

Step-by-step 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)

`= (80)/(400) \\= 0.2`

The marginal propensity to consume is 0.2