Answer to Question #48584 in Economics for Shione

Question

if the marginal propensity to consume in an economy is 0.8 net exports are zero and government spending is 33 billion at each level of real gdp what is the slope of the economy's aggregate expenditures schedule? What is the marginal propensity to consume mpc for the economy

Answer 1

mpc = 0.8, NX = 0, G = 33 billion
The slope of the economy's aggregate expenditures schedule will be 0.8, as AE = mpc*Y + I.
The marginal propensity to consume (MPC) is a metric that quantifies induced consumption, the concept that the increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers). The proportion of disposable income which individuals spend on consumption is known as propensity to consume. MPC is the proportion of additional income that an individual consumes.