it is easier to boost aggregate demand when mpc is high. however, when aggregate demand needs to be boosted, such as during a severe recession, mpc is likely to be lower than during periods of normal economic growth. why is this likely to be the case?

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MalakWael5346 MalakWael5346

21-10-2022
Business

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it is easier to boost aggregate demand when mpc is high. however, when aggregate demand needs to be boosted, such as during a severe recession, mpc is likely to be lower than during periods of normal economic growth. why is this likely to be the case?

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akankshasharma92 akankshasharma92 · Answer 1 · 2022-10-25T06:43:26-04:00

Due to decrease in the economic activities, recession may lead to fall in GDP and unemployment, thus lowering the Marginal Propensity to Consume.

The percentage of an overall salary increase that a customer spends on purchasing goods and services rather than saving is known as the marginal propensity to consume (MPC) in economics. Keynesian macroeconomic theory includes a concept known as marginal propensity to consume, which is determined as the change in consumption divided by the change in income.

Thus during recession, marginal propensity to consume is likely to be lower.

To learn more about marginal propensity to consume click here:

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