Question

An increase in spending of $25 billion increases real gdp from $600 billion to $700 billion. The marginal propensity to consume must be?

Answer 1

An increase in spending of $25 billion increases real gdp from $600 billion to $700 billion. The marginal propensity to consume must be "4".

What do you mean by Marginal Propensity to consume?

The marginal propensity to consume is refers to as the proportion of any change in income that is spent on consumption.

In economics, this term is used to refer to the measurement made in order to determine consumption when the rent is increased by one unit. This measurement is nothing more than a mathematical relationship to calculate how people invest in consumption or save the income that is increased.

Calculation:

$MPC=\frac{change in consumption}{change in income} \\MPC=\frac{100}{25} \\MPC=4$

Learn more about Marginal Propensity to consume, refer to the link:

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