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

Question

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)= (22,600 - 18,100) / (14,000 - 9,000)= 4,500 / 5,000= 0.9Therefore, the Adam Smith family has a marginal propensity to consume of 0.9.

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