If you live T periods, , and
, with logarithmic utility, the marginal propensity of income is approximately equal to:
A) 1/T.
B) T.
C) 1/2.
D) .
E) .

Question

If you live T periods,  , and 
, with logarithmic utility, the marginal propensity of income is approximately equal to:
A) 1/T. 
B) T. 
C) 1/2. 
D) . 
E) .

Quizplus · Accepted Answer

The marginal propensity of income measures the change in consumption due to a change in income. In this case, logarithmic utility implies that the marginal utility of consumption is proportional to 1/income. So, the marginal propensity of income is the derivative of consumption with respect to income, which is equal to the inverse of income. Therefore, the marginal propensity of income is approximately equal to 1/T.

If You Live T Periods, , and