4. Briefly explain how this change in mpc will impact U.S. economic output and price levels...

4. Briefly explain how this change in mpc will impact U.S. economic output and price levels in the short run, using the aggregate supply/demand framework. Include a well-labeled AS-AD model figure. Post as an attachment. (NOTE: No AS-AD model, no points)

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Expert Solution

Changes in Marginal propensity to consume impact the slope of the aggregate demand curve in the AD-AD model and this change in the slope of the AD curve determines the quantum of change in the level of National output in the economy with changes in inflation rate. This can be discussed using two cases where we consider case 1 when MPC is high and case 2 when MPC is low and analyse the impact of increase in aggregate demand in the economy:

Rahul Sunny answered 1 year ago

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