Assume that the MPC is 0.80 and investment rises by $50 million.How much additional saving will this generate in the second round of spending?

Question

Quizplus · Accepted Answer

In the second round of spending, the additional saving generated would be $10 million. This is because with an MPC (marginal propensity to consume) of 0.80, people save 20% (1 - MPC) of any additional income. In the first round, the $50 million investment increases income by $50 million, of which 20% or $10 million is saved.

Assume That the MPC Is 0