Question

Consider a simplified RBC model. Production purely depends on the level of capital: Y - F(Xt) (1 +7)K, where γ is a positive constant. There is no taxation (Ý, PrS + G) and no government spending (Gt -0). Assume that autonomous consumption is zero, so the consumption is proportional to output: Ct - bYf, where b is the marginal propensity to consume. How does an increase in MPC affect Yt+1 and PrSt? A. Yt+1 decreases and PrSt decreases B. Yt+1 decreases and PrSt increases Yti increases and PrSt decreases D. Yt+1 increases and PrSt increases