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

Question

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The MPC (marginal propensity to consume) represents the portion of an additional dollar of income that is spent on consumption. If the MPC is 2/3, then 2/3 of any increase in disposable income will be spent on consumption. An increase in government purchases can stimulate consumption through various channels such as increased wages, employment, and output. Therefore, if the MPC is 2/3, 2/3 of the effect of an increase in government purchases will come from increased consumption.

If the MPC Is 2/3, Then 2/3 of the Effect