What can happen if the marginal propensity to consume is lower in T15 households?
Understand the Problem
The question is asking about the implications of a lower marginal propensity to consume within T15 households and how it affects Aggregate Demand in the economy. It explores various outcomes such as shifts in Aggregate Demand and their possible effects on overall spending.
Answer
Low MPC in T15 households diminishes economic growth by reducing consumption and demand.
If the marginal propensity to consume is lower in T15 households, it means they spend a smaller portion of any additional income. This can reduce the economy's multiplier effect and slow down economic growth as lower consumption dampens demand.
Answer for screen readers
If the marginal propensity to consume is lower in T15 households, it means they spend a smaller portion of any additional income. This can reduce the economy's multiplier effect and slow down economic growth as lower consumption dampens demand.
More Information
MPC is a key component in determining the size of the multiplier effect in an economy. If a group has a lower MPC, their spending contributes less to economic activity, potentially leading to slower growth.
Tips
Confusing MPC with savings or misunderstanding how it affects demand can lead to incorrect conclusions. Ensure to differentiate between income changes and spendable income.
Sources
- Marginal Propensity to Consume (MPC) in Economics, With Formula - investopedia.com
- How to Calculate MPC: Marginal Propensity to Consume - investopedia.com
- Marginal Propensity to Consume - Vocab, Definition, Explanations - fiveable.me
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