In the Permanent-Income Hypothesis Incorporating Rational Expectations,the Short-Run MPC Is

question 45

Multiple Choice

In the permanent-income hypothesis incorporating rational expectations,the short-run MPC is high when changes in current income

• A)are small.
• B)are considered a good predictor of future income changes.
• C)are considered a poor predictor of future income changes.
• D)occur when the economy is nearing cyclical peaks or troughs.

---

Definitions:

Entry Barriers

Obstacles that make it difficult for new competitors to enter a market, including high startup costs, strict regulations, and established brand loyalty.

Competitive Price-searcher Market

A market structure where firms have some control over the pricing of their products because their products are differentiated, but there is intense competition due to low entry barriers.

Economic Profit

The total revenue of a business minus both explicit and implicit costs.

Long-run Equilibrium

A state in which all firms in a market are making normal profits, with no incentive for entry or exit, indicating a stable market condition.