Let C = 100 + 0

question 12

Multiple Choice

Let C = 100 + 0.9YDp) be the consumption function for two people, A and B, with YDp) notationally indicating their view of their permanent income. Summarize that view by defining YDp) = 0.5YD-0) + 0.25YD-1) + 0.25YD-2) with YD-j) notationally representing disposable income lagged j years. If three successive years of disposable income equaling $10,000 were followed by a year of A earning $11,000 and B earning $15,000, then the marginal propensity to consume would equal

• A) 0.45 for both A and B.
• B) 0.45 for A and 0.4 for B.
• C) 0.4 for A and 0.45 for B.
• D) 0.9 for both A and B.
• E) none of the above.

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Definitions:

Consumer Decision Process

The steps and thought processes consumers go through before purchasing a product or service, including need recognition, information search, evaluation, and purchase decision.

Larger Cars

Refers to vehicles that are significantly more spacious and usually more powerful than average, catering to those requiring more room for passengers or cargo.

Self-actualization

The realization or fulfillment of one's talents and potentialities, considered as a drive or need present in everyone.

Hierarchy of Needs

A psychological theory proposed by Abraham Maslow that categorizes human needs into five levels, from basic survival needs to self-actualization.