Let the Consumption Function Be Given by C = 0

question 54

Multiple Choice

Let the consumption function be given by C = 0.85 + 0.8YDP with permanent disposable income specified according to YDP = 0.75YD +
0) 25YD-1) . Let there be a permanent $1,000 increase in income. Two years later, consumption will have increased by

• A) $1,000.
• B) $850.
• C) $800.
• D) Something between $600 and $800.
• E) $600.

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Definitions:

Sales Tax

A tax imposed by governments on the sale of goods and services.

Total Revenue

The entire amount of income generated by the sale of goods, services, or other financial assets before any deductions are made.

Culture of Poverty

A concept in social theory that suggests that poverty is not a result of individual inadequacies but is instead the outcome of a larger social and cultural atmosphere that perpetuates and sustains poverty.

Immediate Gratification

The desire to experience pleasure or fulfillment without delay or deferment.