If RGDP increases by $125 billion as a result of a $25 billion increase in consumer spending, we...

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If RGDP increases by $125 billion as a result of a $25 billion increase in consumer spending, we can conclude that the MPC = 0.75.

a. True

b. False

The Marginal Propensity to Consume and the Spending Multiplier:

The spending multiplier (SM) constitutes a key measure to plan fiscal policy and predict the impact it could generate on public investment. In order to calculate it, it is necessary to know the Marginal Propensity to Consume (MPC).

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  • The correct answer is b. False.

The spending multiplier allows us to calculate the total change in aggregate demand generated by a change in public...

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The Multiplier Effect and the Simple Spending Multiplier: Definition and Examples

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Chapter 5 / Lesson 9
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The multiplier effect is when the money spent multiplies as it filters through the economy. Explore the multiplier effect, the marginal propensity to consume, the marginal propensity to save, and find out how to use the simple spending multiplier.


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