When Ando and Modigliani Set Forth a Consumption Function Depending

question 5

Multiple Choice

When Ando and Modigliani set forth a consumption function depending on disposable income and the value of assets, they expected the coefficient for assets

• A) to be negative and large in magnitude compared with the coefficient for income, an estimate of the short-run marginal propensity to consume.
• B) to approximate the real interest rate, an estimate of the annual consumption that can be supported by interest earnings on a piece of financial capital.
• C) to be a reasonably close estimate of the long-run marginal propensity to consume, because assets holdings are dominated by the long-term portions of investment portfolios.
• D) b and c only.
• E) none of the above.

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Definitions:

Tolerance

The process of becoming less responsive to a specific amount of a substance or stimulus after repeated exposure.

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A condition characterized by a physical or psychological need for a substance or behavior, often leading to compulsive use.

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