Assuming that investment,government expenditures,and net exports are all autonomous,the marginal propensity to consume for the economy represented in Figure 9.9 is
A)1.0 since aggregate expenditure is a straight line.
B)0.5.
C)0.25.
D)Indeterminate since there is no consumption function.

Question

Assuming that investment,government expenditures,and net exports are all autonomous,the marginal propensity to consume for the economy represented in Figure 9.9 is
A)1.0 since aggregate expenditure is a straight line. 
B)0.5. 
C)0.25. 
D)Indeterminate since there is no consumption function.

Quizplus · Accepted Answer

The slope of the aggregate expenditure line in Figure 9.9 is 0.5, which means that a $1 increase in income leads to a $0.50 increase in aggregate expenditure. Therefore, the marginal propensity to consume (MPC) is 0.5. It is important to note that the question assumes that investment, government expenditures, and net exports are all autonomous, meaning they are fixed and do not depend on income.

Assuming That Investment,government Expenditures,and Net Exports Are All Autonomous,the Marginal