Q1. Refer to the theories of consumption, give brief answers to the following questions. 1. What is meant by secular stagnation? What led to the failure of this concept? 2. Identify any two similarities and differences between permanent and life cycle income hypothesis? 3. If one is to compare "mpc" out of permanent income and "mpc" out of transitory income, which would be greater in terms of value and why? 4. Suppose you earn same income as one of your cousins but expect to live longer than your cousin, how would your consumption function be different than that of your cousin? Would you consumer more or less than him? 5. Refer to the following intertemporal budget constraint of a respective consumer: Second-period consumption, C Consumer's (1+r)Y, +Y budget constraint Saving Borrowing Y, Y, +Y/(1+r) First-period consumption, C, a. How would this budget constraint change if individual becomes more presented oriented (he discounts future heavily)? b. How would this budget constraint change if individual faces a borrowing constraint in second period? 6. Average propensity to consumer along a linear consumption function is always constant; true or false? Justify your response.

Q1. Refer to the theories of consumption, give brief answers to the following questions. 1. What is meant by secular stagnation? What led to the failure of this concept? 2. Identify any two similarities and differences between permanent and life cycle income hypothesis? 3. If one is to compare "mpc" out of permanent income and "mpc" out of transitory income, which would be greater in terms of value and why? 4. Suppose you earn same income as one of your cousins but expect to live longer than your cousin, how would your consumption function be different than that of your cousin? Would you consumer more or less than him? 5. Refer to the following intertemporal budget constraint of a respective consumer: Second-period consumption, C Consumer's (1+r)Y, +Y budget constraint Saving Borrowing Y, Y, +Y/(1+r) First-period consumption, C, a. How would this budget constraint change if individual becomes more presented oriented (he discounts future heavily)? b. How would this budget constraint change if individual faces a borrowing constraint in second period? 6. Average propensity to consumer along a linear consumption function is always constant; true or false? Justify your response.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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