Share
Explore BrainMass

Effect of a decrease in the marginal propensity to consume

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?

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, ...

Solution Summary

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

$2.19