Let the consumption function be given by C = 80 + 0.9YDP with permanent disposable income specified according to YDP = 0.5YD + 0.3YD-1) + 0.2YD-2) . Which of the following is true?
A) The long-run MPC = 0.45 while the short-run MPC = 0.9.
B) The long-run MPC = 0.9 while the short-run MPC = 0.45.
C) The long-run MPC = 1.0 while the short-run MPC = 0.9.
D) The long-run MPC = 0.9 while the sum of the short-run MPCs equals 1.0.
E) Both the long-run MPC and the short-run MPC equal 0.9.
Correct Answer:
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