Determination of Aggregate MPC in the Two-Household Model
In an economy described by the two-household model, the aggregate marginal propensity to consume (MPC) is calculated as the average of the MPCs of the two distinct groups. This yields an aggregate MPC value between 0 and 1. The precise value depends on the relative proportion of consumption-smoothing households (MPC = 0) versus credit-constrained or present-biased households (MPC = 1) within the population.
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