Textbooks › Macroeconomics, 7th ed. › Chapter 15
Chapter 15
72 questions · 25 topics · 3 free · not started
The first three are free. Tap an answer to see why.
1 · Recall · Easy · Consumption and Expectations
In modern macroeconomic theories of consumption, how is human wealth defined?
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Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Human wealth is defined as the present discounted value of an individual's expected lifetime after-tax labor income.
Tap any option to see why it's right or wrong.
2 · Analysis · Medium · Expectations and Consumption
Assuming that households make consumption choices according to the permanent income hypothesis and ignoring tax effects, which of the following income changes will generate the smallest increase in current consumption?
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Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
Not quite. A is correct.
Under the permanent income theory, consumers smooth consumption over their life horizons. A transitory, one-time windfall is divided over all remaining years of life, leading to an imperceptibly small increase in current consumption compared to permanent increases.
Tap any option to see why it's right or wrong.
3 · Analysis · Hard · Expectations and Consumption
Describe the calculations and forward-looking decisions that a rational consumer must make to determine their consumption spending in any given period according to modern consumption theory.
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Model answer. To decide on consumption in any period, a fully foresighted consumer must first estimate their total wealth, which consists of non-human wealth (financial wealth and housing wealth) and human wealth.
Calculating human wealth requires the consumer to form expectations about future labor income, future taxes, and future real interest rates over their remaining working lifetime, and then compute the present discounted value of expected after-tax labor income.
Once total wealth (non-human plus human wealth) is determined, the consumer decides on a desired consumption path that smooths consumption across their lifetime. If current disposable income in the period is less than the optimal consumption level, the consumer borrows to bridge the gap; if it is greater, the consumer saves the surplus.
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