Let C = 100 + 0

question 25

Multiple Choice

Let C = 100 + 0.85YDp) represent a consumption function depending on a notion of permanent income YDp) based on some undefined combination of disposable income lagged over the past six years. In this case, the long-run marginal propensity to consume would be

• A) 0.85.
• B) approximately equal to 0.85 but increased slightly by the lagged structure of permanent income.
• C) approximately equal to 0.85 but reduced slightly by the lag structure of permanent income.
• D) approximately equal to the lag coefficient of this year's disposable income in the definition of permanent income times 0.85 but reduced slightly by the rest of the lag structure of permanent income.
• E) none of the above.

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Definitions:

Labor

The effort by humans to produce goods or services in exchange for wages or salary.

Supply

The total amount of a product or service that is available to consumers, often influenced by price, production costs, and external factors.

Labor Union

An organization of workers formed to protect and advance their rights and interests, typically through collective bargaining.

Excess Supply

A situation where the quantity of a product offered by producers exceeds the quantity demanded by consumers, leading to surplus.