The Life-Cycle-Permanent-Income hypothesis says that the marginal propensity to consume out of a permanent increase in income is close to ____ and close to ____ for a temporary increase in income.
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2 marks, −1MacroeconomicsConsumption and investmentRelative income, permanent income and life-cycle hypothesesModerateabout 2 min
DSE 2005 Question 26: Consumption and investment
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Consumption and investment has come up 74 times in 7 exams since 2005.
What this question tests
This question is on Relative income, permanent income and life-cycle hypotheses, part of Consumption and investment in Macroeconomics.
Why consumption reacts less than one-for-one to temporary income changes.
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Question from the DSE 2005 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.