Question

A decrease in the MPC may cause:
Select one:
O a. A fall in the equilibrium
income
O b. The government spending multiplier rise
O c. It does not affect the equilibrium income
O d. An increase in the equilibrium income.​

Answer 1

Answer:

O c. It does not affect the equilibrium income

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Answer 2

A decrease in MPC may cause a fall in the equilibrium income. (Option a)

• MPC or Marginal Propensity to Consume is the increase in consumption with an increase in income rather than saving.
• The income individuals spend to consume goods and services is mentioned as the propensity to consume.
• The additional income the same individual spends with an increase in pay is mentioned as the marginal propensity to consume.
• The income level at which the demand and supply are the same is known as equilibrium income. Here there will neither be a scarcity nor a surplus in production
• Thus, when the MPC decreases, the equilibrium income will fall.