Consider the simplest macro model with demand-determined output

Economics Feb 12, 2021

Consider the simplest macro model with demand-determined output. The equations are:

C = 150 + 0.80 YD YD = Y -T I = 400 G = 700 T = 0.31 Y X = 130 IM =0.25 Y.

The marginal propensity to spend on national income in this model is (rounded to two decimal points) is ______

Expert Solution

Computation of Marginal Propensity to Consume:

Given,

Consumption function (C) = 150+0.8Yd

Here, 0.8 represents the slope of the consumption function such that dc/dy = 0.8 this implies that this is also the marginal propensity to consume of the consumer. That is the consumer consumes 80% of his disposable income.

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