If an economy consumes 68 percent of any increase in disposable income,then an increase in autonomous investment of $1 billion would result in an increase in total spending of as much as

Question

Quizplus · Accepted Answer

The economy's marginal propensity to consume (MPC) is 0.68, meaning it consumes 68% of any increase in disposable income. The multiplier effect is calculated as 1/(1-MPC), which is 1/(1-0.68) = 3.125. Therefore, an increase in autonomous investment of $1 billion would result in an increase in total spending of $1 billion * 3.125 = $3.125 billion.

If an Economy Consumes 68 Percent of Any Increase in Disposable