*4. Data on before-tax income, taxes paid and consumption spending (on domestic goods and services) for the Simpson family in various years are given below. BEFORE-TAX INCOME (S) TAX PAID (S) CONSUMPTION SPENDING (S) 3000 3500 3700 4000 25 000 27 000 28 000 30 000 20 000 21 350 22 070 23 600 a. Graph the Simpsons's consumption function and find their 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 $5000? c. Homer Simpson wins a lottery prize. As a result, the Simpson family increases its consumption by $1000 at each level of after-tax income. ('Income' does not include the prize money.) How does this change affect the graph of their consumption function? How does it affect their marginal propensity to consume?

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*4. Data on before-tax income, taxes paid and consumption spending (on domestic
goods and services) for the Simpson family in various years are given below.
BEFORE-TAX INCOME (S) TAX PAID (S) CONSUMPTION SPENDING (S)
3000
3500
3700
4000
25 000
27 000
28 000
30 000
20 000
21 350
22 070
23 600
a. Graph the Simpsons's consumption function and find their 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 $5000?
c. Homer Simpson wins a lottery prize. As a result, the Simpson family increases
its consumption by $1000 at each level of after-tax income. ("Income' does not
include the prize money.) How does this change affect the graph of their
consumption function? How does it affect their marginal propensity to
consume?
Transcribed Image Text:*4. Data on before-tax income, taxes paid and consumption spending (on domestic goods and services) for the Simpson family in various years are given below. BEFORE-TAX INCOME (S) TAX PAID (S) CONSUMPTION SPENDING (S) 3000 3500 3700 4000 25 000 27 000 28 000 30 000 20 000 21 350 22 070 23 600 a. Graph the Simpsons's consumption function and find their 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 $5000? c. Homer Simpson wins a lottery prize. As a result, the Simpson family increases its consumption by $1000 at each level of after-tax income. ("Income' does not include the prize money.) How does this change affect the graph of their consumption function? How does it affect their marginal propensity to consume?
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