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Homework answers / question archive / If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the MPC in the economy is 0

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the MPC in the economy is 0

Economics

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the MPC in the economy is

  • 0.8.
  • 0.6.
  • 0.2.
  • 0.9.

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Computation of MPC in the Economy:

MPC = Income Created in the Second Round / Income Created in the First Round

 = 160/200 

MPC = 0.8

So, the correct option is 1st "0.8".

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