The relationship between income, savings, and consumption is directly related to the price level in the economy. Your research has shown that for every additional dollar of disposable income, consumers currently spend $0.75 and save the rest. Assuming an increase in investment of $1 billion dollars,
- What is the Marginal Propensity to Consume?
- What is the spending multiplier?
- What will the effect on the Gross Domestic Product?
- Assuming the price level stays the same, what will be the effect of the new investment on the aggregate demand curve?