If the marginal propensity to consume in an economy is .8,net exports are zero,and government spending is $33 billion at each level of real GDP,the slope of the economy's aggregate expenditures schedule will be:
A) .8.
B) .2.
C) 5.
D) .125.

Question

Quizplus · Accepted Answer

The slope of the aggregate expenditures schedule is equal to the marginal propensity to consume (MPC) multiplied by 1 minus the marginal tax rate (MTR) plus the marginal propensity to import (MPI). Since the question states that net exports are zero, we can ignore the MPI term. Additionally, it does not provide information on the marginal tax rate, so we can assume it is also zero. Therefore, the slope of the aggregate expenditures schedule is equal to the MPC, which is .8. Thus, the correct answer is A) .8.

If the Marginal Propensity to Consume in an Economy Is