IF income was transferred from individuals with a low MPC to those with a high MPC, aggregate demand would:
a) Increase.
b) Decrease.
c) Stay the same.
d) Increase or decrease, but not because of the MPC.
Think it through and then take a shot.
I'm gonna say A.
To determine the impact of transferring income from individuals with a low marginal propensity to consume (MPC) to those with a high MPC on aggregate demand, let's break down the options:
a) Increase: When income is transferred from individuals with a low MPC to those with a high MPC, it means that more wealth is being shifted towards individuals who are more likely to spend a larger portion of their income. This increased spending will lead to a higher aggregate demand in the economy.
b) Decrease: This option is unlikely because transferring income to individuals with a higher MPC would usually result in increased spending, which in turn boosts aggregate demand. Therefore, decreasing aggregate demand is not the expected outcome.
c) Stay the same: This option is also unlikely because transferring income to individuals with a higher MPC will likely result in increased spending, which will impact aggregate demand. Therefore, aggregate demand is not expected to remain the same in this scenario.
d) Increase or decrease, but not because of the MPC: This option suggests that the change in aggregate demand may occur due to factors unrelated to the MPC. However, since this question specifically focuses on transferring income based on the MPC, this option is not relevant to the question.
Based on the above analysis, the correct answer is: a) Increase. Transferring income from individuals with a low MPC to those with a high MPC would increase aggregate demand.