The marginal propensity to consume is difficult to estimate because
A) it depends on expectations of future income
B) it depends on perceptions regarding the permanence of changes in income
C) it depends on credit and borrowing constraints
D) it declines as uncertainty increases
E) all of the above

Question

Quizplus · Accepted Answer

The marginal propensity to consume is affected by all of the factors listed in the options. Expectations of future income, perceptions regarding the permanence of changes in income, and credit and borrowing constraints all play a role in determining how much an individual or household will consume out of any additional income. Moreover, uncertainty can lead individuals to save more, which would decrease the marginal propensity to consume. Therefore, it is difficult to estimate the value of the marginal propensity to consume accurately.

The Marginal Propensity to Consume Is Difficult to Estimate Because