ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is the percentage of total income that is spent on consumption.
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It determines the size of the simple spending multiplier.
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It increases as incomes increase because increases in income cause people to spend more.
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It is the same as the money multiplier.
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It is equal to the average propensity to consume for people with low incomes.
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Detailed explanation-1: -Answer : The correct option is (a). Explanation: A) True, because Marginal propensity to consume (MPC) as the share (or percentage) of the additional income a person decides to consume (or spend).
Detailed explanation-2: -In Keynesian macroeconomic theory, the marginal propensity to consume is a key variable in showing the multiplier effect of economic stimulus spending. Specifically, it suggests that a boost in government spending will increase consumer income, and in turn, consumer spending will rise.
Detailed explanation-3: -Marginal propensity to consume and the multiplier This is because the initial injection leads to knock on effects and further rounds of spending. The marginal propensity to consume will determine the size of the multiplier. The higher the MPC, the greater the multiplier effect will be.
Detailed explanation-4: -Which is true regarding the marginal propensity to consume and the multiplier? a. The lower the MPC, the higher the multiplier.
Detailed explanation-5: -The marginal propensity to consume is the extra money we spend, ultimately creating an increase in demand and spending. The consequence of the extra spending and producing is an overall increase in income, which is called the multiplier effect.