Ando and Modigliani Postulated a Consumption Function Depending on Not

question 49

Multiple Choice

Ando and Modigliani postulated a consumption function depending on not only disposable income but also the value of assets in which people keep their wealth. The estimated coefficient for asset value

• A) emerged in the neighborhood of 0.06, pretty close to the marginal propensity to consume that the theory might predict for temporary changes in income.
• B) emerged in the neighborhood of 0.7, a little low for the propensity to consume that the theory would predict for permanent changes in income.
• C) emerged as expected on the basis of theory in the 0.05 range, but the estimated marginal propensity to consume out of income was a bit low, in the 0.7 range.
• D) a and c.
• E) none of the above.

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