If net taxes decrease by $100 billion and the result is an increase in GDP of $300 billion,what is the marginal propensity to consume?

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) can be calculated using the formula for the multiplier effect: Multiplier = 1/(1-MPC). Given that the multiplier effect is 3 (since GDP increased by $300 billion due to a $100 billion decrease in taxes), we can set up the equation 3 = 1/(1-MPC). Solving for MPC gives MPC = 0.75.

If Net Taxes Decrease by $100 Billion and the Result