What will be the mpc of disposable income

Reference no: EM13221979

if the MPC of disposable income is 0.6, and the marginal propensity to invest is 0.2, and the Y multiplier is 5, then if the government reduces taxes by 150, the public will spend 0.6 * 150 , or 90, and Y will increase by 450.

Why don't we say that the public will spend ((0.6+0.2) * 150), or 120, and Y will increase by 600. After all, when we talk about domestic investment, it's not only government that invests in the economy - people do too, right?

Reference no: EM13221979

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