If the MPC is 2/3,2/3 of the effect of an increase in government purchases on aggregate demand will come from increased consumption.

Question

Quizplus · Accepted Answer

The MPC (Marginal Propensity to Consume) is the fraction of additional income that is spent on consumption. If the MPC is 2/3 and the government increases its purchases, the additional income received by individuals will lead to an increase in consumption spending, which accounts for 2/3 of the overall effect on aggregate demand. Therefore, two-thirds of the effect will come from increased consumption.

If the MPC Is 2/3,2/3 of the Effect of an Increase