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The marginal propensity to consume (MPC)

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The marginal propensity to consume (MPC) equals 0.3, and the marginal propensity to import (MPm) is 0.1. If Americans suddenly increase their desire for European cars and the MPm increases to 0.3, on the basis of the Keynesian model of output determination:

A) the multiplier will rise by 20% of its original value.
B) an increase in government spending of 100 will have no effect on GDP
C) an increase in GDP of 100 will cause imports to rise by 30
D) all of the above
E) none of the above

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Solution Preview

This is an Open Economy Multiplier question,
The Multiplier =1/(1 - (MPC - MPM) )

At ...

Solution Summary

The marginal propensity to consume (MPC) is determined.

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