Accepting the absolute income hypothesis, would you expect the MPC in the U.S. economy in 2011 to be higher, lower, or about the same as the MPC in the Haitian 2011 economy? Why? How would it compare to the MPC in the U.S. economy in 1950?
Answer to relevant QuestionsGive an example of transitory income. What effect does this income have on the marginal propensity to consume? Consider the variables income, consumption, and investment. One relationship among them is relatively stable, the other quite volatile. Discuss. Calculate the 2010 and 2011 MPCs for each of the countries. What effect would an upward shift in the investment curve have on the equilibrium level of national income? Use your imagination to create the first five rounds of a $1,000 change in aggregate expenditure. Show the final effect on national income when MPS = 0.10.
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