Let the Consumption Function Be Given by C = 80

question 28

Multiple Choice

Let the consumption function be given by C = 80 + 0.9YDP with permanent disposable income specified according to YDP = 0.5YD + 0.3YD-1) + 0.2YD-2) . Which of the following is true?

• A) The long-run MPC = 0.45 while the short-run MPC = 0.9.
• B) The long-run MPC = 0.9 while the short-run MPC = 0.45.
• C) The long-run MPC = 1.0 while the short-run MPC = 0.9.
• D) The long-run MPC = 0.9 while the sum of the short-run MPCs equals 1.0.
• E) Both the long-run MPC and the short-run MPC equal 0.9.

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Definitions:

Upsloping

Typically refers to a graph line that shows an increase in a variable as another variable increases; commonly used in economics to describe supply curves.

Suppliers

Entities that provide goods or services to other individuals or organizations, typically for resale or business use.

Federal Income Tax

A tax levied by the United States government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Taxpayers

Individuals or entities that are obligated to pay taxes to government authorities based on earned income, property ownership, or other taxable activities.