Assume that the MPC is 0.85 and investment spending rises by $100 million.How much consumption spending will this generate in the second round of spending?

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 0.85, meaning that for every additional dollar received, individuals will spend 85 cents. In the second round of spending, the $100 million increase in investment spending will generate $85 million in consumption spending (0.85 * $100 million), as individuals spend 85% of the new income they receive.

Assume That the MPC Is 0