If the level of income changes by $1 trillion, C₀ = $2 trillion, C_y = .8 and t =.25, the change in level of consumption spending (C) would equal A) $6 trillion. B) $.6 trillion. C) $.8 trillion. D) $.2 trillion.

Question

Quizplus · Accepted Answer

The change in consumption spending (C) can be calculated using the formula: ΔC = MPC * (1 - t) * ΔY, where MPC is the marginal propensity to consume, t is the tax rate, and ΔY is the change in income. Given MPC = 0.8, t = 0.25, and ΔY = $1 trillion, ΔC = 0.8 * (1 - 0.25) * $1 trillion = 0.8 * 0.75 * $1 trillion = $0.6 trillion.

If the Level of Income Changes by $1 Trillion, C0

If the Level of Income Changes by $1 Trillion, C₀