Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 11E
(a)
To determine
The change in consumption when a person receives $100,000 via a will.
(b)
To determine
The effect of an unexpected promotion on the level of consumption.
(c)
To determine
The change in consumption due to the imposition of a one-time tax that costs $10,000.
(d)
To determine
The change in consumption when a person won a lottery worth $10 million.
(e)
To determine
The change in consumption when a person won a lottery worth $10 million but the payment is made 5 years from now.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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,…
In 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)
Which of the following would not cause shift in the investment demand curve as the above graph shows?
Select one:
a. Business taxes
b. Expectations
c. Changes in real interest rates
d. Acquisition, maintenance, and operating costs
e. Technological change
Chapter 11 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- Explain why changes in consumption are unpredictable if consumers obey the permanent-income hypotheses and have rational expectations.arrow_forwardMULTIPLE CHOICE Which of the following statements best describes an implication of the Permanent Income Hypothesis? (1) The Marginal Propensity to Consume (MPC) out of permanent income is larger than the MPC out of temporary income. (2) The MPC out of permanent income is smaller than the MPC out of temporary income. (3) The MPC out of permanent income is equal to the MPC out of temporary income. (4) The MPC out of permanent income is larger than the MPC out of temporary income, only if income effects dominate substitution effects.arrow_forwardFrom 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 Hypothesisarrow_forward
- How does the stock market affect consumption according to the permanent-income hypothesis? Is this prediction in line with the empirical evidence? .arrow_forwardThe consumption function macroeconomics is often written as C= a + b(Y-T) where b expresses: a. The marginal savings rate b. The marginal propensity to consume c. The interest rate that maximizes consumption d. The relationship between tax and consumptionarrow_forwardAccording to Keynes, wealth or credit is a factor that affects consumption. An example of wealth is A,B,C,OR D one answer a an increase in expected future income. b a decline in interest rates. c an increase in economic output. d an increase in the value of stockarrow_forward
- In the Neoclassical model of determination of income in the long run we assumed that aggregate consumption was an increasing function of disposable income, , and nothing else. Suppose that instead we assume that consumption is an increasing function of disposable income, , and a decreasing function of the real interest rate, . Provide an economic rationale for making consumption a function of the real interest rate. How does this assumption change the national saving function relative to the benchmark model Using the model developed in (1), use a diagram for the market for loanable funds to describe what happens to national saving, national investment, and the real interest rate when government expenditure increases. Make sure to also explain in your own words the economic intuition of your results.arrow_forwardMacroeconomics Question No.5 State whether the following statements are true, false or uncertain. Also provide the explanation of false statements: The higher the level of income, higher will be the marginal propensity to consume. If marginal propensity to consume increases, aggregate demand curve will become flatter. The value of marginal propensity to consume must lies between 0 and 1. There is a direct relationship between interest rate and money supply. Government will use expansionary fiscal policy to control inflation.arrow_forwardWhat is a random walk? How is Hall’s random-walk model of consumption related to the life-cycle and permanent-income hypotheses?arrow_forward
- Suppose that the Federal funds rate rose from 3% to 6% during the year. What would you expect to happen to the rate of growth in real consumption, and in the consumption/income ratio, under the following circumstances? (A) The corporate bond rate rose from 6% to 9%. (B) The corporate bond rate remained unchanged at 6%. (C) The stock market declined 20%. (D) The stock market was unchanged. (E) The unemployment rate rose from 5% to 6%. (F) The unemployment rate was unchanged.arrow_forwardIn the Neoclassical model of determination of income in the long run we assumed that aggregate consumption was an increasing function of disposable income, , and nothing else. Suppose that instead we assume that consumption is an increasing function of disposable income, , and a decreasing function of the real interest rate, . Provide an economic rationale for making consumption a function of the real interest rate. How does this assumption change the national saving function relative to the benchmark model?arrow_forwardPlease write down whether the following statements are true or false, and explain your answer very briefly A)If actual investment is greater than planned investment, inventories increase more than planned. B)The marginal propensity to consume is the change in consumption expenditure divided by the percentage change in income. C)Gross domestic product (GDP) is the value of all goods and services produced in an economy over a particular time period. D)Monetary policy refers to taxation and spending policies implemented by government. E)In a simple Keynesian model (with lump-sum taxes and a MPC of 0.8), a tax cut of 20 billion TL will have less of an impact on GDP than an increase in government spending of 10 billion TL. D)When you take 1000 TL from your savings account and deposit it in your checking account, M2 decreases. F)An open market purchase of government securities (such as Treasury Bills) by the Central Bank will decrease the money supply and raise the interest rate.…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
