permanent Income Hypothesis a) suppose that beta=.9 and R= 2222 (that is ~22%). For an individual who acts according to the PIH, will their consumption next period be higher than current consumption or lower? b) What is the main crucial difference between the Keynesian Consumption function and the consumption function derived from the PIH (or Lifetime Income Hypothesis)? c) If Present Value of future income stream is 500,000 and a person has a beta of.8, how much will their consumption go up today if only today's income increases by 1000? How much will their consumption increase (approximately) if their income goes up by 1000 in all periods?
permanent Income Hypothesis a) suppose that beta=.9 and R= 2222 (that is ~22%). For an individual who acts according to the PIH, will their consumption next period be higher than current consumption or lower? b) What is the main crucial difference between the Keynesian Consumption function and the consumption function derived from the PIH (or Lifetime Income Hypothesis)? c) If Present Value of future income stream is 500,000 and a person has a beta of.8, how much will their consumption go up today if only today's income increases by 1000? How much will their consumption increase (approximately) if their income goes up by 1000 in all periods?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter24: The Aggregate Demand/aggregate Supply Model
Section: Chapter Questions
Problem 42CTQ: On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because...
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3. permanent Income Hypothesis
a) suppose that beta=.9 and R= 2222 (that is ~22%). For an individual who acts according to the PIH, will their consumption next period be higher than current consumption or lower?
b) What is the main crucial difference between the Keynesian Consumption function and the consumption function derived from the PIH (or Lifetime Income Hypothesis)?
c) If Present Value of future income stream is 500,000 and a person has a beta of.8, how much will their consumption go up today if only today's income increases by 1000? How much will their consumption increase (approximately) if their income goes up by 1000 in all periods?
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