The theory of consumption which argues that consumption is based on a household's long-run estimate of their wealth is called the: Group of answer choices: - absolute income hypothesis - relative income hypothesis - permanent income hypothesis - life-cycle model
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Step 1: The theory of consumption that argues that consumption is based on a household's long-run estimate of their wealth is called the permanent income hypothesis. Show more…
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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)
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The life-cycle permanent income hypothesis (LC-PIH) of consumption implies that Group of answer choices The marginal propensity to consume (MPC) out of permanent income is larger than the MPC out of transitory income Income remains stable throughout lifetime An individual's marginal propensity to consume (MPC) out of transitory income decreases with age Consumption will fall sharply after retirement
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According to Milton Friedman's Permanent Income Hypothesis, the marginal propensity to consume permanent income is ____________, whereas the propensity to consume transitory income is __________. Group of answer choices low, low low, high high, low high, high
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