If the government collects taxes using a constant income tax rate t, then the adjusted marginal propensity to consume (adjusted MPC) is:

Question

Quizplus · Accepted Answer

The adjusted MPC takes into account the fact that some of the income is being taxed and therefore cannot be consumed. The formula for the adjusted MPC is b(1-t), where b is the original MPC and t is the tax rate. Therefore, the correct answer is B.

If the Government Collects Taxes Using a Constant Income Tax