Real Consumption Is a Function of Real Disposable Income, but the Simple

question 222

Multiple Choice

Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since

• A) real disposable income tends to move proportionately with real GDP.
• B) real disposable income is a fixed percentage of real GDP.
• C) real GDP is a fixed percentage of real disposable income.
• D) we cannot measure either exactly and the purpose of the exercise is theoretical only.