Short-run marginal propensities to consume are smaller than long-run propensities in part because
A) people need time to decide whether or not an increase in income is permanent or temporary and the propensity applied to a permanent change is smaller than the propensity applied to a temporary change.
B) people need time to decide whether or not an increase in income is permanent or temporary and the propensity applied to a permanent change is larger than the propensity applied to a temporary one.
C) people make rash decisions in the short run and thereby overspend.
D) it takes a long time for the consumer durables that dominate long- run consumption to be delivered and paid for.
E) none of the above.

Question

Quizplus · Accepted Answer

In the long run, people are more likely to view an increase in income as permanent, leading to a larger propensity to consume compared to the short run, where the permanence of income changes is uncertain.

Short-Run Marginal Propensities to Consume Are Smaller Than Long-Run Propensities