Milton Friedman argued that, over long periods of time, the average propensity to consume is constant because, over these long periods of time:
A) the variation in income is dominated by the transitory component
B) the variation in income is dominated by the permanent component.
C) it is the behavior of the average consumer that dominates.
D) income averages out to a constant.

Question

Quizplus · Accepted Answer

Friedman argued that over long periods of time, the variation in income is dominated by the permanent component rather than the transitory component. Therefore, the average propensity to consume remains relatively constant because individuals base their consumption decisions on their long-term income outlook rather than short-term fluctuations.

Milton Friedman Argued That, Over Long Periods of Time, the Average