With the theoritical of Permanent-Income Hypothesis in mind, explain how Friedman sought to reconcile the evidence about consumption from cross-sectional
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With the theoritical of Permanent-Income Hypothesis in mind, explain how Friedman sought to reconcile the evidence about consumption from cross-sectional data with that from time series
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How does it reconcile cross-sectional data with that from time series
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- With the theoretical prediction of PIH mind, explain how Friedman sought to reconcile the evidence about consumption from cross-sectional data with that from time-series macroeconomic data.Explain why changes in consumption are unpredictable if consumers obey the permanent-income hypotheses and have rational expectations.(A Two-Period Sticky-Price Model). Consider a two-period, sticky-price economy like the one studied in lectures 11-13. Suppose that the household’s intertemporal optimality condition is of the form C2 C1 = β P1 P2 (1 + i), where C1 and C2 denote consumption in periods 1 and 2, P1 = P2 = 1 denote the price levels in periods 1 and 2, β = 0.9 denotes the subjective discount factor, and i denotes the nominal interest rate, which must satisfy the zero lower bound (ZLB). Suppose further that the full employment levels of output in periods 1 and 2 are given by Y¯ 1 = Y¯ 2 = 1, and that the economy is always at full employment in period 2 (the long run). Part 1: Suppose the central bank sets the nominal interest rate at the level i ∗ that minimizes unemployment without overheating. Calculate i ∗ . Part 2: Suppose that due to bad expected meteorological conditions, the full-employment level of output in period 2 is revised down to 0.8. Suppose that in response to this news, in period 1 the…
- use analytic exposition and an appropriate diagram, to explain how the permanent income theory of construction reconcile the results of cross- section and time -series estimates of the Keynesian consumption functionIn consumption theory, what is meant by the expression “consumption smoothing”? Why is consumption smoothing a key element of the life-cycle hypothesis and permanent income hypothesis? (100 words max)What is a random walk? How is Hall’s random-walk model of consumption related to the life-cycle and permanent-income hypotheses?
- This question has two parts and concerns the permanent income hypothesis. Which statement best defines the permanent income hypothesis? Consumer spending depends on the level of disposable income that people expect to have over the course of their lifetime. When in a recession, although current consumer spending can be observed, future consumer spending cannot be predicted due to an unknown number of people leaving their temporary recession jobs for higher‑paying, permanent jobs that better fit their skills. Consumer spending depends on both the income and wealth of people in the economy. Consumer spending is proportional to the ratio of people in stable full‑time employment (that is, with "permanent" income) and people in unstable part‑time employment (that is, with "temporary" income). According to the permanent income hypothesis, which situations would result in an immediate increase in consumer spending, which would result in an immediate decrease in consumer spending,…How do the life-cycle and permanent-income hypotheses resolve the seemingly contradictory pieces of evidence regarding consumption behavior?From the Intertemporal Choice Model, many theories (non-Keynesian theories of Consumption) came into being. Using graphical and mathematical expressions, compare and contrast the following theories on consumption behaviours:i. Franco Modigliani: Life-Cycle Hypothesisii. Milton Friedman: Permanent-Income Hypothesisiii. Robert Hall: Random Walk Hypothesis
- what does the Relative Income hypothesis, permanant income hypothesis, and the life circle hypothesis have in common. how the keyensian hypothesis and that of the permanent income hypothesis differ in term of their policy implication. compare the policy implication of each of the following theories of comsumption behavior, the permanant income, relative income and the life circle hypothesis.Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and also confirm whether all three goals of a macro economy are being achieved in each zone. 2. Draw and properly label the AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how Keynesians suggest that recessionary and inflationary gaps be closed. 3. Draw and properly label AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how neoclassicals suggest that recessionary and inflationary gaps be closed.Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. If we extend the model to that investment is an inverse function of the rate of interest, what will happen to the employment if interest rates are cut? a. Indeterminate b. Neither c. Higher employment d. Lower employement.
