If the marginal propensity to consume is 0.75 and taxes are decreased by a lump sum of $400 billion, what will be the increase in income

Respuesta :

The income will be increased by $533.33 billion with MPC equals 0.75 and a decrease in taxes by $400 billion.

What is MPC?

MPC stands for marginal propensity to consume which is determined by dividing the change in consumption of consumers by to change in income earned by them.

Given values:

MPC = 0.75

Decrease in taxes (Change in consumptiuon)= $400 billion

Computation of increase in income (Change in income):

[tex]\rm\ MPC=\frac{\rm\ Change \rm\ in \rm\ Consumption}{\rm\ Change \rm\ in \rm\ Income} \\\rm\ Change \rm\ in \rm\ Income = \frac{\rm \ Change \rm\ in \rm\ Consumption}{\rm\ MPC}\\\rm\ Change \rm\ in \rm\ Income =\frac{\$ 400 \rm\ billion}{\rm\ 0.75}\\\\\rm\ Change \rm\ in \rm\ Income=\$ 533.33 \rm\ billion[/tex]

Therefore, when there is a decrease in consumption by $400 billion with MPC 0.75 then there is an increase in income by $533.33 billion.

Learn more about MPC in the following link:

https://brainly.com/question/24173282

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