If you live T periods,
,R = 0,and with logarithmic utility;the marginal propensity of income is approximately equal to:
A)1/T
B)T
C)1/2

Question

If you live T periods, 
,R = 0,and with logarithmic utility;the marginal propensity of income is approximately equal to:
A)1/T 
B)T 
C)1/2

Quizplus · Accepted Answer

In a model with logarithmic utility, the marginal propensity of income is given by the inverse of the level of wealth or income. Since R=0, the level of wealth at the end of T periods will be the same as the initial level of wealth. Therefore, the average level of wealth during the T periods is W/T. The marginal propensity of income is then 1/(W/T), which simplifies to 1/T. Therefore, the correct answer is A) 1/T.

If You Live T Periods