Asked by Nguyê?n Thi? Hô?ng Loan on May 11, 2024
Verified
How large will the total change in income be from a change in investment of $15 if the marginal propensity to consume is .8?
A) $12
B) $20
C) $25
D) $75
E) $200
Marginal Propensity To Consume
The ratio of the change in consumption spending to the change in disposable income, indicating how much of additional income will be spent.
- Absorb the principles of the multiplier effect, its calculation procedures, and its effects on fiscal policies and the output of the economy.
- Grasp the concept of marginal propensity to consume (MPC) and its role in determining the strength of the multiplier effect.
Verified Answer
JC
Jordan Cardoza
May 17, 2024
Final Answer :
D
Explanation :
The total change in income from a change in investment can be calculated using the multiplier effect formula, which is 1/(1 - MPC), where MPC is the marginal propensity to consume. Here, MPC = 0.8, so the multiplier is 1/(1 - 0.8) = 5. Therefore, the total change in income = 5 * $15 = $75.
Learning Objectives
- Absorb the principles of the multiplier effect, its calculation procedures, and its effects on fiscal policies and the output of the economy.
- Grasp the concept of marginal propensity to consume (MPC) and its role in determining the strength of the multiplier effect.