Because the long-run marginal propensity to consume is
A) smaller than the short-run marginal propensity to consume; consumption is more volatile over the business cycle than personal disposable income.
B) larger than the short-run marginal propensity to consume; consumption is less volatile over the business cycle than personal disposable income.
C) larger than the short-run marginal propensity to consume; consumption is more volatile over the business cycle than personal disposable income.
D) smaller than the short-run marginal propensity to consume; consumption is less volatile over the business cycle than personal disposable income.
E) identical to the short-run marginal propensity to consume.

Question

Quizplus · Accepted Answer

The long-run marginal propensity to consume is larger than the short-run marginal propensity to consume, which means that over time, people tend to consume a larger portion of an additional dollar of income. This leads to consumption being less volatile over the business cycle compared to personal disposable income, as people smooth their consumption over time based on their long-term income expectations.

Because the Long-Run Marginal Propensity to Consume Is