Last year, Jim and Matthew both spent about two third of their income on consumption. This year, each receive alarge bonus at work. Jim immediately spends two third of his bonus on a new TV. Matthew increases consumptionslightly, spending a small percentage of the bonus each month. Which of the following is true?O a. Both Jim and Matthew's behaviors are more consistent with a Keynesian consumption function thanFriedman's permanent income hypothesisO b. Both Jim and Matthew's behaviors are more consistent with Friedman's permanent income hypothesis thana Keynesian consumption functionO c. Jim's behavior is most consistent with Friedman's permanent income hypothesis, while Matthew's is moreconsistent with a Keynesian consumption functiond. Jim's behavior is most consistent with a Keynesian consumption function, while Matthew's is moreconsistent with Friedman's permanent income hypothesisA firm produces 1000 units of its product, which it expects to be able to sell to the market. It actually only sells 900units as people would rather save money to purchase goods in the future. Which of the following theories is thisbehavior most inconsistent with?O a. Rational ExpectationsO b. Say's LawO c. The Classical DichotomyO d. Keynesian EconomicsAssume the natural rate of unemployment is 5% and expected inflation is 2%. The Federal Reserve unexpectedlyincreases the money supply, which pushes inflation to 4%. If the Friedman-Phelps adaptive expectations model ofthe Phillips Curve holds, we would expectO a. Unemployment to rise in the short run and in the long run return to the natural rate of unemployment asinflation expectations fallO b. Unemployment to fall in the short run and in the long run return to the natural rate of unemployment asinflation expectations fallO c. Unemployment to fall in the short run and in the long run return to the natural rate of unemployment asinflation expectations increaseO d. Unemployment to rise in the short run and in the long run return to the natural rate of unemployment asinflation expectations increase

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Last year, Jim and Matthew both spent about two third of their income on consumption. This year, each receive a large bonus at work. Jim immediately spends two third of his bonus on a new TV. Matthew increases consumption slightly, spending a small percentage of the bonus each month. Which of the following is true? a. Both Jim and Matthew's behaviors are more consistent with a Keynesian consumption function than Friedman's permanent income hypothesis b. Both Jim and Matthew's behaviors are more consistent with Friedman's permanent income hypothesis than a Keynesian consumption function c. Jim's behavior is most consistent with Friedman's permanent income hypothesis, while Matthew's is more consistent with a Keynesian consumption function d. Jim's behavior is most consistent with a Keynesian consumption function, while Matthew's is more consistent with Friedman's permanent income hypothesis

Last year, Jim and Matthew both spent about two third of their income on consumption. This year, each receive a large bonus at work. Jim immediately spends two third of his bonus on a new TV. Matthew increases consumption slightly, spending a small percentage of the bonus each month. Which of the following is true? a. Both Jim and Matthew's behaviors are more consistent with a Keynesian consumption function than Friedman's permanent income hypothesis b. Both Jim and Matthew's behaviors are more consistent with Friedman's permanent income hypothesis than a Keynesian consumption function c. Jim's behavior is most consistent with Friedman's permanent income hypothesis, while Matthew's is more consistent with a Keynesian consumption function d. Jim's behavior is most consistent with a Keynesian consumption function, while Matthew's is more consistent with Friedman's permanent income hypothesis

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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