FIGURE 22-4
-Refer to Figure 22-4.The rotation from to could be caused by
A)an increase in the marginal propensity to consume out of disposable income.
B)a decrease in the marginal propensity to import.
C)an increase in the marginal propensity to import.
D)a decrease in the net tax rate.
E)a decrease in government purchases.

Question

FIGURE 22-4
-Refer to Figure 22-4.The rotation from  to  could be caused by
A)an increase in the marginal propensity to consume out of disposable income. 
B)a decrease in the marginal propensity to import. 
C)an increase in the marginal propensity to import. 
D)a decrease in the net tax rate. 
E)a decrease in government purchases.

Quizplus · Accepted Answer

The rotation of the consumption function indicates a change in the marginal propensity to consume, which could be caused by various factors including changes in income taxes, disposable income, and import expenditures. Since the rotation is clockwise, it suggests a decrease in the marginal propensity to import (as imports are subtracted from disposable income), which would cause consumers to spend a smaller fraction of their disposable income on domestic goods and services. Therefore, the correct answer is (C) an increase in the marginal propensity to import.

FIGURE 22-4 -Refer to Figure 22-4.The Rotation from to Could