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Suppose that labour income increases by 100 million. Among the consumers, 20% have no assets and just consume their current labour income. The other 80%
Suppose that labour income increases by 100 million. Among the consumers, 20% have no assets and just consume their current labour income. The other 80% behave in accordance with the consumption theory presented in Chapter 4. Of the increase in income, 50% is perceived as permanent increase in real income and 50% as a temporary increase which will be reversed next year. Make a rough calculation of the effect on consumption (and thus the marginal propensity to consume).
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