Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 19, Problem 4QR
To determine
The unpredictability of changes in consumption.
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- What is meant by “excess sensitivity” of consumption? Is this view of consumption consistent with the permanent-income hypothesis? Explain. How does the stock market affect consumption according to the permanent-income hypothesis? Is this prediction in line with the empirical evidence? Explain.arrow_forwardwhat is unrealistic about friedman consumption theory ?arrow_forwardHow does the stock market affect consumption according to the permanent-income hypothesis? Is this prediction in line with the empirical evidence? .arrow_forward
- 2.1 According to the permanent income hypothesis, how will a representative consumer's bor- rowing and consumption respond to: 1. An anticipated temporary decrease in income at t = 2. 2. An anticipated permanent decrease in income (at time periods t = 1 and t = 2) when it occurs. 3. Are the answers different if the changes in income are unanticipated, i.e. if they come as a surprise to the consumer? Comment on the size of the marginal propensity to consume.arrow_forwardWould it be plausible to claim that the theory of rational expectations is a distorted form of neoclassical economics? Explain.arrow_forwardexplain whether each of the following statements is true or false. Q) If real interest rates become negative, the neoclassical model of investment predicts there is now no limit to how much capital firms want to purchase.arrow_forward
- 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 Hypothesisarrow_forwardWhich 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 changearrow_forwardWhat other factors besides interest rates will cause the investment demand curve to shift?arrow_forward
- Summarize the main implications of the neoclassical consumption model forconsumption and saving.arrow_forwardExplain whether each of the following statements is true or false : A). An increase in the ratio of cash holdings to deposits raises the money multiplier. B). If real interest rates become negative, the neoclassical model of investment predicts there is now no limit to how much capital rms want to purchase.arrow_forwardIn the discussion of the life-cycle hypothesis, income is assumed to be constant during the period before retirement. For most people, however, income grows over their lifetimes. How does this growth in income influence the lifetime pattern of consumption and wealth accumulation shown in Figure 17-12 under the following conditions? Consumers can borrow, so their wealth can be negative. Consumers face borrowing constraints that prevent their wealth from falling below zero. Do you consider case (a) or case (b) to be more realistic? Why?arrow_forward
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