Exam 10: Consumption Demand

Errors made by researchers using the long-term estimate of the marginal propensity to consume to predict short-term movement in consumption can be extremely large. It is important, therefore, to understand when those errors might occur. If you were to draw the simple Keynesian consumption with MPC = 0.94 on a piece of graph paper, then you would expect to plot

An intuitive explanation of the observed discrepancy between short- and long-run marginal propensities to consume must focus on why

An increase in the marginal propensity to consume is most accurately thought of as

It has been argued that, "A tax cut must be followed later by a tax increase to pay for the resulting deficit" is the self-fulfilling prophecy of those who use it to predict that an income windfall from a tax reduction must be temporary. The argument can be supported by

Suppose that an individual anticipated that the next calendar year's income would be $1,000 higher than this year's. Facing a real interest rate of 0 percent and a 20-year planning horizon, you would expect her annual real consumption to

Suppose that the real interest rate climbs. In that case,

For the past 30 years in the United States, the long- and short-run marginal propensities to consume have been estimated to be

The short-run marginal propensity to consume is estimated on the basis of

Ando and Modigliani postulated a consumption function depending on not only disposable income but also the value of assets in which people keep their wealth. The estimated coefficient for asset value

The short-run marginal propensity to consume can be derived statistically by calculating how

Short-run marginal propensities to consume are smaller than long-run propensities in part because

The impact of an increase in the real interest rate on consumption

Knowing the desired size of the bequest is important in predicting the path of future consumption,

Let the consumption function be given by C = 0.85 + 0.8YDP with permanent disposable income specified according to YDP = 0.75YD + 0)25YD-1). Let there be a permanent $1,000 increase in income. Two years later, consumption will have increased by

Suppose that people looked upon a $1,000 windfall as 50 percent permanent and 50 percent temporary. The short-run marginal propensity to consume out of that $1,000

As consumption becomes more sensitive to the real rate of interest,

Modern forward-looking theories of consumption

Which of the following circumstances is likely to exaggerate the expected shift in an IS curve in response to a reduction in taxes?