Would the Keynesian consumption function work well in a world of ...

[Bernana]

Would the Keynesian consumption function work well in a world of libertarian paternalists?
 
  What will be an ideal response?

Question 2

Private saving refers to ________.
 
  A) after-tax income minus consumption expenditures
  B) a flow variable which adds to the stock of wealth
  C) the private saving rate times disposable income
  D) all of the above
  E) none of the above

[abro1885]

Answer to Question 1

If consumption behavior depends mostly on current constraints and immediate consequences, then current consumption is driven by current income, as the Keynesian consumption function says. Libertarian paternalism seeks to tighten the constraints. More effective inducements to save might lower the marginal propensity to consume, but it will be as true as ever that changes in current consumption will be driven principally by changes in current income.

Answer to Question 2

D

[Bernana]

YES! Correct, THANKS for helping me on my review

[nothere]

Thanks for the timely response, appreciate it