In the Keynesian model, an increase in real autonomous spending results in a greater increase in real Gross Domestic Product (GDP) if
A) the marginal propensity to consume (MPC) is lower.
B) the marginal propensity to consume (MPC) is higher.
C) the average propensity to save (APS) is higher.
D) the average propensity to save (APS) is lower.

Question

Quizplus · Accepted Answer

The higher the marginal propensity to consume (MPC), the greater the increase in real GDP resulting from an increase in real autonomous spending. This is because a higher MPC implies that a larger proportion of the additional income generated by the increase in autonomous spending will be spent, rather than saved. As a result, the increase in aggregate demand and real GDP will be larger.

In the Keynesian Model, an Increase in Real Autonomous Spending