Abby Kratz, a Market Specialist at the Market Research Firm

Multiple Choice

Abby Kratz, a market specialist at the market research firm of Saez, Sikes, and Spitz, is analyzing household budget data collected by her firm.Abby's dependent variable is weekly household expenditures on groceries (in $'s) , and her independent variables are annual household income (in $1,000's) and household neighborhood (0 = suburban, 1 = rural) .Regression analysis of the data yielded the following table. $$\begin{array} { | c | c | c | c | c | } \hline & \text { Coefficients } & \text { Stardard Error } & t \text { Statistic } & p \text {-value } \\\hline \text { Intercept } & 19.68247 & 10.01176 & 1.965934 & 0.077667 \\\hline x _ { 1 } \text { (income) } & 1.735272 & 0.174564 & 9.940612 & 1.68 \mathrm { E } - 06 \\\hline x _ { 2 } \text { (neighborhood) } & 49.12456 & 7.655776 & 6.416667 & 7.67 \mathrm { E } - 05 \\\hline\end{array}$$ The marginal propensity to consume (MPC) is defined in economics as the proportion of an additional dollar of income that a household (or individual) consumes.Assume that grocery spending is the main expenditure of households.Then according to the regression analysis above, the MPC ______.

A) of rural households is equal to that of urban households, and this MPC decreases as households increase their annual income
B) of rural households is larger than that of urban households, and both MPCs decrease as households increase their annual income
C) of rural households is equal to that of urban households, and this MPC is constant as households increase their annual income
D) of rural households is larger than that of urban households, and both MPCs are constant as households increase their annual income
E) of rural households is larger than that of urban households, and both MPCs increase as households increase their annual income