Data on before-tax income, taxes paid, and consumption spending for the Simpson family in various years are given below. (LO6)

a. Find the Simpson household’s marginal propensity to consume.

b. How much would you expect the Simpsons to consume if their income was $32,000 and they paid taxes of $5,000?

c. Homer Simpson wins a lottery prize. As a result, the Simpson family increases its consumption by $1,000 at each level of after-tax income. (“Income”
does not include the prize money.) How does this change affect their consumption function? How does it affect their marginal propensity to consume?
Explain your answer.

Transcribed Image Text:

Before-tax Taxes Consumption income ($) paid ($) spending ($) 25,000 3,000 20,000 27,000 3,500 21,350 28,000 3,700 22,070 30,000 4,000 23,600