When finding the ultimate effect on the economy of a stimulus spending package according to the Aggregate Expenditures Model, the original amount of spending must be multiplied by the ratio of 1 / (1 - MPC), where the MPC is

Question

Business

Miriam Greene

11 July, 17:19

When finding the ultimate effect on the economy of a stimulus spending package according to the Aggregate Expenditures Model, the original amount of spending must be multiplied by the ratio of 1 / (1 - MPC), where the MPC is

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Answers (1)

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Adriana Harding · Answer 1

Marginal propensity to consume

Explanation:

The marginal propensity to consume refers to what proportion of extra income will individuals decide to spend instead of saving. Additional consumer spending increases private consumption, while the remaining amount (marginal propensity to save) will increase investment.