Consider the general form of the consumption function in a simple macro model.Once government and taxes are included in the model,desired consumption can be expressed as ________,where a = autonomous consumption,t = net tax rate,Y = national income,YD = disposable income,and MPC = marginal propensity to consume.
A)C = a + MPC(1 - t)YD
B)C = a - (1 - t)YD
C)C = a + MPC ∙ Y
D)C = a + MPC ∙ t ∙ YD
E)C = a + MPC(1 - t)Y

Question

Quizplus · Accepted Answer

The correct expression for desired consumption, considering taxes, is C = a + MPC(1 - t)Y, where (1 - t)Y represents disposable income after accounting for taxes.

Consider the General Form of the Consumption Function in a Simple