Let's consider this economy:(1)AD=C+I (2)C=100+0.8Y (3)I=200 What is the marginal propensity to consume?
Question
Solution 1
The marginal propensity to consume (MPC) is the increase in consumer spending due to an increase in income. This can be calculated from the consumption function.
In the given consumption function C = 100 + 0.8Y, the coefficient of Y (which is 0.8) is the marginal propensity to consume.
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