Let Y = Real GDP and Y_d = Disposable Income

Multiple Choice

Let Y = real GDP and Y_d = disposable income. Suppose initially, Y = Y_d and the marginal propensity to consume (MPC) is 0.9. All components of aggregate expenditures except consumption are autonomous. Now suppose the government imposes an income tax rate of 20% on real GDP. What is the marginal propensity to consume following the imposition of an income tax?

A) 0.7
B) 0.72
C) 0.18
D) 1.1