The Portion of Additional Income That Is Spent on Consumption

question 161

Multiple Choice

The portion of additional income that is spent on consumption is

• A) average propensity to consume APC).
• B) marginal propensity to consume MPC).
• C) marginal propensity to save MPS).
• D) average propensity to save APS).
• E) 1 minus marginal propensity to consume 1 - MPC).

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of a taxpayer’s income is taxed, indicating the proportion of additional income that is paid in taxes.

Proportional Tax

A tax system where the tax rate remains constant regardless of the amount subject to taxation.

Regressive Tax

A tax system wherein the tax rate decreases as the taxable amount increases, placing a higher burden on lower-income earners.

Sales Tax

A tax on the value of goods sold.