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, = disposable income,and MPC = marginal propensity to consume.
A)C = a + MPC(1 - t)
B)C = a - (1 - t)
C)C = a + MPC ∙ Y
D)C = a + MPC ∙ t ∙
E)C = a + MPC(1 - t)Y

Question

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,  = disposable income,and MPC = marginal propensity to consume.
A)C = a + MPC(1 - t) 
B)C = a - (1 - t) 
C)C = a + MPC ∙ Y 
D)C = a + MPC ∙ t ∙ 
E)C = a + MPC(1 - t)Y

Quizplus · Accepted Answer

The correct formula for desired consumption in a simple macro model with government and taxes is: 
C = a + MPC(1 - t)Y 
where a is autonomous consumption, MPC is the marginal propensity to consume, t is the net tax rate, and Y is national income or disposable income. Therefore, the best choice is E as it matches the correct formula.

Consider the General Form of the Consumption Function in a Simple