The decrease in lifetime wealth affects consumption demand by A) -MPC(G₂ - G1). B) MPC(G₂ - G₁). C) r(G₂ - G₁). D) (1 - MPC)(G2 - G₁). E) does not affect it.

Question

Quizplus · Accepted Answer

The decrease in lifetime wealth reduces consumption demand by MPC(G2 - G1), where MPC is the marginal propensity to consume and (G2 - G1) is the change in government spending.

The Decrease in Lifetime Wealth Affects Consumption Demand by