According to Friedman's Permanent-Income Hypothesis, If the Marginal Propensity to Consume

question 29

Multiple Choice

According to Friedman's permanent-income hypothesis, if the marginal propensity to consume out of permanent income equals 0.9 and current income equals $55,000 (of which $5,000 is transitory income) , then consumption should equal:

• A) $5,000.
• B) $45,000.
• C) $49,500.
• D) $55,000.

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Definitions:

Underemployment

Workers are overqualified for their jobs or work fewer hours than they would prefer.

Seasonal Unemployment

Unemployment due to seasonal variations in demand or supply of labor, common in industries like agriculture and tourism.

Full Employment Level

The level of employment where all available labor resources are being used in the most economically efficient way.

Vietnam War

A prolonged conflict from 1955 to 1975 between North Vietnam, supported by its communist allies, and South Vietnam, supported by the United States and other anti-communist countries.