Data on after-tax income and consumption spending for the Adam Smith family are given below: $\begin{array}{|r|r|}
\hline {\text { After-Tax Income }} & \text { Consumption Spending } \
\hline \$ 9,000 & \$ 18,100 \
\hline \$ 14,000 & \$ 22,600 \
\hline \$ 19,000 & \$ 27,100 \
\hline \$ 24,000 & \$ 31,600 \
\hline
\end{array}$ Based on these data, the Adam Smith family has a marginal propensity to consume equal to:
A)0.9.
B)0.8.
C)0.75.
D)0.6.

Question

Data on after-tax income and consumption spending for the Adam Smith family are given below: $\begin{array}{|r|r|}
\hline {\text { After-Tax Income }} & \text { Consumption Spending } \
\hline \$ 9,000 & \$ 18,100 \
\hline \$ 14,000 & \$ 22,600 \
\hline \$ 19,000 & \$ 27,100 \
\hline \$ 24,000 & \$ 31,600 \
\hline
\end{array}$ Based on these data, the Adam Smith family has a marginal propensity to consume equal to: 
A)0.9.
B)0.8.
C)0.75.
D)0.6.

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is the change in consumption spending divided by the change in after-tax income. In this case, the MPC is calculated as follows:MPC = (Change in consumption spending) / (Change in after-tax income)= (31,600 - 27,100) / (24,000 - 19,000)= 4,500 / 5,000= 0.9Therefore, the Adam Smith family has a marginal propensity to consume equal to 0.9.

Data on After-Tax Income and Consumption Spending for the Adam