An economy consists of two types of households. Type A households can borrow and save freely, allowing them to keep their spending stable even when their income fluctuates. Type B households face borrowing difficulties and immediately spend any additional income they receive. If a new government policy makes it significantly easier for Type B households to access small loans, what is the most likely effect on the economy's aggregate marginal propensity to consume (MPC)?
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In a simplified economy, 60% of households are able to perfectly smooth their consumption over time, meaning they do not change their spending when their income temporarily changes. The remaining 40% of households are constrained and spend any additional income they receive immediately. What is the aggregate marginal propensity to consume (MPC) for this entire economy?
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An economy consists of two types of households. Type A households can borrow and save freely, allowing them to keep their spending stable even when their income fluctuates. Type B households face borrowing difficulties and immediately spend any additional income they receive. If a new government policy makes it significantly easier for Type B households to access small loans, what is the most likely effect on the economy's aggregate marginal propensity to consume (MPC)?