Assume MPC = 0.80. If an initial fiscal restraint of $100 billion is desired, by how much must Instructions: In part a, enter your response as a whole number. In part b, round your response to two decimal places. government spending be reduced? $ ____ billion taxes be raised? $ ____ billion
Assume MPC = 0.80. If an initial fiscal restraint of $100 billion is desired, by how much must
Instructions: In part a, enter your response as a whole number. In part b, round your response to two decimal places.
- government spending be reduced?
$ ____ billion
- taxes be raised?
$ ____ billion
Introduction
The marginal propensity to consume (MPC) is a term used in economics to describe how much of an increase in income is spent on consumption. The "average propensity to consume" or APC is another name for it.
The MPC is determined as the fractional difference between the change in consumption and the change in income. The effect of changes in income on total demand and economic output can be measured using the MPC. Additionally, it is used to forecast how changes to taxes, transfer payments, and other income sources would impact the amount of economic activity overall.
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