Problem
In a certain economy the variance of transitory income is 0.5 that of permanent income, the propensity to consume nondurables out of permanent income is 0.6, and there is no expenditure on durables. What would be the value of the multiplier derived from a naïve regression of consumption on income, and what would be the true value?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.