Keynes suggested that decisions to consume and save were based on ?
Correct answer: B. absolute income
- A. previous decisions
- B. absolute income
- C. relative income
- D. permanent income
Explanation
Keynes's absolute-income hypothesis links consumption mainly to current absolute income, with consumption rising as income rises. Relative and permanent income theories were developed later by Duesenberry and Friedman, respectively.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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