Which of the following is a characteristic of the 'Permanent Income Hypothesis' of consumption?
A. Consumption is independent of income
B. Consumption depends primarily on long-run average or permanent income
C. Only transitory income determines consumption
D. Consumption depends only on current income
Answer: Option B
Solution (By JKSSB Mock Tests)
According to Milton Friedman's permanent income hypothesis, individuals base their consumption on permanent (expected long-run) income rather than on current measured income.
Explanation:
GDP includes depreciation (capital consumption). NNP is obtained by subtracting depreciation from GNP. Thus depreciation is part of GDP but not of NNP.
Explanation:
Okun's Law describes the empirical relationship between unemployment and the output gap: a rise in unemployment is associated with a fall in actual output relative to potential output.
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