Data on after-tax income and consumption spending for the Adam Smith family are given below: Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

Question

Data on after-tax income and consumption spending for the Adam Smith family are given below:  Based on these data, the Adam Smith family has a marginal propensity to consume equal to:

Quizplus · Accepted Answer

From row to row, the increase in after-tax (or disposable) income is $5,000. For each of these $5,000 increases in after-tax income, consumption spending increases by $4,000. The marginal propensity to consume, therefore, is $4,000 ÷ $5,000 = 0.8.

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