Economists state that government purchases have a multiplier effect on aggregate demand. In other words, every dollar spent by the government leads to an increase in aggregate demand for goods and services by a dollar or more. According to the multiplier equation below, what does MPC stand for? Multiplier = 1/(1 - MPC)

Question

Quizplus · Accepted Answer

MPC stands for Marginal Propensity to Consume.
Key Takeaway: Marginal Propensity to Consume or MPC is a proportion of an individual/family's disposable income that is consumed rather than saved. An increase in income leads to an increase in disposable income and an increase in MPC.

Economists State That Government Purchases Have a Multiplier Effect on Aggregate