If MPC is 0.8,what size effect would a $200 billion increase in government purchases have on the "first round" of induced added consumption?
A)$80 billion
B)$160 billion
C)$200 billion
D)$800 billion

Question

Quizplus · Accepted Answer

The formula for the first round of induced added consumption is MPC x change in disposable income. Given MPC is 0.8, an increase in government purchases of $200 billion would increase disposable income by $200 billion. Therefore, the first round of induced added consumption would be 0.8 x $200 billion = $160 billion.

If MPC Is 0