As national income increases, consumption spending increases as well, always by the same amount. That is, as national income increases, MPC remains constant, according to
a. Duesenberry's relative income hypothesis
b. Keynes's absolute income hypothesis
c. Friedman's permanent income hypothesis
d. Modigliani's life-cycle hypothesis
e. real asset theory
A
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The full-employment and full-adjustment level of real Gross Domestic Product (GDP) in the economy is represented by
A) the horizontal line at the price level. B) the LRAS curve. C) the distance between the LRAS curve and the AD curve. D) the AD curve.
The long-run effect of reducing the government budget deficit would be
a. a higher price level and a lower level of output b. a lower price level and a lower level of output c. a higher price level and a higher level of output d. a higher price level with unchanged output e. a lower price level with unchanged output