Let the Consumption Function Be Defined by C = 0

question 15

Multiple Choice

Let the consumption function be defined by C = 0.85 + 0.8YDP with permanent disposable income specified according to YDP = 0.75YD + 0.25YD-1) . Which of the following is true?

• A) The long-run MPC = 0.85 while the short-run MPC = 0.6.
• B) The long-run MPC = 0.8 while the short-run MPC = 0.75.
• C) The long-run MPC = 0.8 while the short-run MPC = 0.6.
• D) The long-run MPC = 0.8 while the short-run MPC lies somewhere between 0.25 and 0.75.
• E) Both the long-run MPC and the short-run MPC equal 0.8.

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Definitions:

Ordinary Gain

Ordinary gain refers to the profit that arises from the sale of an asset or property, which is taxable at standard income tax rates.

Receivables

Money owed to a business by its clients or customers for goods or services that have been delivered but not yet paid for.

Artistic Works

Original items or creations, like paintings, music, literature, etc., often protected by copyright law.

Capital Assets

Long-term assets such as property, plant, and equipment that are used or held for investment purposes, the sale of which results in capital gains or losses.