Errors Made by Researchers Using the Long-Term Estimate of the Marginal

question 41

Multiple Choice

Errors made by researchers using the long-term estimate of the marginal propensity to consume to predict short-term movement in consumption can be extremely large. It is important, therefore, to understand when those errors might occur. If you were to draw the simple Keynesian consumption with MPC = 0.94 on a piece of graph paper, then you would expect to plot

• A) the combination of consumption and GDP for 1973 above the line.
• B) the combination of consumption for 1983 below the line.
• C) the combination of consumption and GDP for 1975 above the line.
• D) the combination of consumption and GDP for 1946 below the line.
• E) none of the above.

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Definitions:

Target Profit

The predetermined amount of income that a company aims to achieve in a specific period.

Fixed Component

The part of total costs in a business that remains constant regardless of the level of production or business activity.

Least-Squares Regression

A statistical method used to determine the line of best fit by minimizing the sum of the squares of the vertical distances of the points from the line.

Units Produced

The total quantity of finished goods a company manufactures in a specific period.