The Keynesian View of Consumption Differs from the Permanent Income

question 45

Multiple Choice

The Keynesian view of consumption differs from the permanent income hypothesis because the Keynesian view assumes that:

• A) consumption varies with changes in current income.
• B) temporary tax cuts will have no effect on consumption.
• C) consumption depends on lifetime earnings.
• D) the marginal propensity to consume is equal to 1.

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Definitions:

Close Substitutes

Products or services that can serve the same purpose or function, making them easily replaceable with one another in consumption or use.

Pollution Laws

Legislation that sets limits on the emission of pollutants into the environment, aiming to protect air and water quality.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single entity can influence the market price.

Positive Profits

Financial gains that exceed the costs and expenditures incurred in generating revenue.