Drawn is the consumption function for Jim. Rachel is economically identical to Jim except in two important aspects. First, while Rachel has the same income as Jim, Rachel has lower expected future income. Second, Rachel has a higher marginal propensity to save than does Jim. Change the consumption function of Jim to reflect a feasible consumption function of Rachel and then answer the following question (scroll down to see the second part). hold Consumer Spending Consumption function

Drawn is the consumption function for Jim. Rachel is economically identical to Jim except in two important aspects. First, while Rachel has the same income as Jim, Rachel has lower expected future income. Second, Rachel has a higher marginal propensity to save than does Jim. Change the consumption function of Jim to reflect a feasible consumption function of Rachel and then answer the following question (scroll down to see the second part). hold Consumer Spending Consumption function

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The first difference between Jim and Rachel (the difference in expected future income) will either cause
the aggregate demand curve to shift or not cause the aggregate demand curve to shift due to an
economic theory. Which theory explains this change (or lack thereof)?
The rule of increasing marginal costs
The life-cycle hypothesis
The theory of bounded rationality
The permanent income hypothesis
The theory of rational expectations

Drawn is the consumption function for Jim. Rachel is economically identical to Jim except in two important
aspects. First, while Rachel has the same income as Jim, Rachel has lower expected future income.
Second, Rachel has a higher marginal propensity to save than does Jim. Change the consumption
function of Jim to reflect a feasible consumption function of Rachel and then answer the following question
(scroll down to see the second part).
Household Consumer Spending
Consumption function
Household Current Disposable Income

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