The greater the MPC:
A)the greater the fraction of an increase in AD due to an increase in government purchases that is consumption.
B)the smaller the fraction of an increase in AD due to an increase in government purchases that is consumption.
C)the greater the change in government purchases required to achieve a given change in AD.
D)none of the above

Question

The greater the MPC:
A)​the greater the fraction of an increase in AD due to an increase in government purchases that is consumption.
B)​the smaller the fraction of an increase in AD due to an increase in government purchases that is consumption.
C)​the greater the change in government purchases required to achieve a given change in AD.
D)​none of the above

Quizplus · Accepted Answer

The MPC (marginal propensity to consume) represents the fraction of additional income that consumers spend, and not save. Therefore, a higher MPC indicates that a larger portion of any increase in income will be spent on consumption. So, a higher MPC will result in a larger fraction of an increase in aggregate demand (AD) being contributed by consumption. Hence, choice (A) is correct.

The Greater the MPC