24. Friedman's theory of the "permanent income hypothesis" argues that: a) Current consumption is determined solely by current income b) Current consumption is determined by lifetime income expectations c) Changes in income have no effect on consumption behavior d) Changes in income lead to proportional changes in consumption
Added by Alvaro H.
Close
Step 1
Step 1: Friedman's theory of the "permanent income hypothesis" suggests that individuals base their consumption decisions not only on their current income but also on their expectations of future income. Show more…
Show all steps
Your feedback will help us improve your experience
James Kiss and 70 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
Which three of the following are characteristic of Friedman’s ‘Permanent Income Hypothesis’? a) The main influence on long-run consumption is ‘transitory income’ b) The main influence on long-run consumption is some form of long-run average income c) The long-run consumption function will tend to be steeper than the short-run consumption function d) The long-run consumption function will tend to be flatter than the short-run consumption function e) Consumption will tend to be a constant proportion of long-run average income (permanent income) Group of answer choices b), d) and e) a), d) and e) b), c), & e) a), c) and e)
James K.
One of the following is not assumption of the Keynesians explanation for income determination in a closed economy without government Select one: a. Induced consumption is not related to the level of income b. Autonomous consumption is not income inelastic c. None of options are correct d. Government spending is exogenously determined
Andrew D.
a) Using the permanent income hypothesis in a two-period setting, derive the permanent income (fixed consumption) for a consumer that will receive a stimulus check in the first period. Which factors will determine when/how this check will be spent? b) What would happen to your response in a) if the interest rate is expected to increase in the future?
Lottie A.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD