Question

If aggregate expenditures increase by $14 billion and equilibrium GDP consequently increases by $70 billion, then the marginal propensity to consume in the economy must be

Answer 1

0.2

Step-by-step explanation:

Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

Marginal propensity to consume is the proportion of disposable income that is spent on consumption

Marginal propensity to consume = amount consumed / disposable income

Marginal propensity to save is the proportion of disposable income that is saved

Marginal propensity to save = amount saved / disposable income

MPC + MPS = 1

MPC = $14 billion / $70 billion = 0.2