Consider standard RBC. Which of the following changes in time t would have the most stimulative...
Consider standard RBC. Which of the following changes in time t would have the most stimulative effect on Consumption in t+1?
A. Reduction in proclivity to save
B. New technology that causes machines to last longer
C. Reduction G in t
D. Reduction M in t
Homework Answers
Correct option is (A).
Since Marginal propensity to consume (MPC) = 1 - Marginal propensity to save (MPS),
As MPS decreases, MPC increases. Higher MPC in period t increases the induced component of consumption demand in period (t+1).
Add Answer to:
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using a diagram. Second, state how the final equilibrium price and
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