Purchase Solution

Effect of a decrease in the marginal propensity to consume

Not what you're looking for?

Ask Custom Question

According to the Keynesian and Classical models, what will a decrease in the marginal propensity to consume have on changes in government fiscal policy variables (Government Purchases (G) or Net Taxes (T) impact on the models?

Purchase this Solution
Solution Summary

Effect of a decrease in the marginal propensity to consume on G and T in Keynesian and Classical models.

Solution Preview

A component of Keynesian theory, MPC represents the proportion of an aggregate raise in pay that is spent on the consumption of goods and services, as opposed to being saved. Thus a fall in MPC would mean that for each dollar of income, less would be spent. The value of the marginal propensity to consume should be greater than zero and less than one. A value of zero would indicate that none of additional income would be spent; all would be saved. A value greater than one would mean that if income increased by $1.00, ...

Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • MPC and MPS

    This solution defines Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) and explains how they affect Gross Domestic Product (GDP) because of the multiplier effect.

  • Open-Market Operations and Aggregate Demand

    B) Increase, because the effect on the marginal propensity to consume would be magnified even more. C) Increase, because the effectiveness to increase the money supply would be magnified.

  • marginal propensity to consume

    The higher the marginal propensity to consume, the higher is the multiplier which is division of change in real GDP to initial change in spending.

  • The marginal propensity to consume

    The falling phase of a business cycle measured by a decrease in real GDP is called: . business cycle economic activity: ....recession...recovery....growth...decline Recession The marginal propensity to consume is clarified in this solution

  • effect of changing the savings rate on consumption

    Identify and describe the effect of changing the savings rate on consumption. ? Calculate the marginal propensity to consume after the change in the rate of savings. ?

  • income and consumption relationship

    This relation is called the marginal propensity to consume: Marginal Propensity to Consume = Change in Consumption / Change in Disposable Income The MPC is almost always less than 1, implying you almost always spend less than the total amount you

  • The marginal propensity to consume (MPC)

    16653 The Marginal Propensity to Consume (MPC) The marginal propensity to consume (MPC) equals 0.3, and the marginal propensity to import (MPm) is 0.1.

  • Inventory growth and the business cycle

    Mathematically, the multiplier is given by 1/(1-b) where b is the marginal propensity to consume. Thus, whenever a dollar is removed from the economy, the total effect is determined by the marginal propensity to consume.

  • Business cycles and Keynesian cross model

    Mathematically, the multiplier is given by 1/(1-b) where b is the marginal propensity to consume. Thus, whenever a dollar is removed from the economy, the total effect is determined by the marginal propensity to consume.

View More Related Solutions