Question

in the island of microtania, the marginal propensity to consume is 0.80. the government of microtania is considering a proposal to spend $10 million to upgrade its roads and bridges. how much in aggregate expenditures will this spending generate for the economy?

Answer 1

$50 million aggregate expenditures will generate for the economy.

• As Marginal Propensity to Consume is 0.8 and Proposal to spend is 10 million.

The marginal propensity to consume is a measure of induced consumption in economics, which is the idea that an increase in disposable income leads to an increase in personal consumption. Propensity to consume is the percentage of disposable income that people spend on consumption.

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