Real consumption is a function of real disposable income, but the simple Keynesian model uses real GDP instead of real disposable income. This is appropriate since
A) real disposable income tends to move proportionately with real GDP.
B) real disposable income is a fixed percentage of real GDP.
C) real GDP is a fixed percentage of real disposable income.
D) we cannot measure either exactly and the purpose of the exercise is theoretical only.

Question

Quizplus · Accepted Answer

While real disposable income is a more accurate measure of individuals' ability to consume, real GDP is a commonly used proxy that tends to move proportionately with real disposable income over time. Therefore, using real GDP in the simple Keynesian model is appropriate.

Real Consumption Is a Function of Real Disposable Income, but the Simple