Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.9 and a net tax rate of 10% of national income,the marginal propensity to consume out of national income is
A)0.09.
B)0.72.
C)0.81.
D)0.90.
E)1.00.

Question

Quizplus · Accepted Answer

The marginal propensity to consume out of national income can be calculated as:
MPC(Y) = MPC(DI) × (1 - Net tax rate)
= 0.9 × (1-0.1)
= 0.81

Therefore, the answer is C.

Consider a Consumption Function in a Simple Macro Model with Government