In modern macroeconomic theories of consumption, how is human wealth defined?
Why
Tap an answer. The explanation will appear here, including why each wrong option is 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.
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.
Your progress
Chapter 15: not started.
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?
Why
Tap an answer. The explanation will appear here, including why each wrong option is 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.
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.
Your progress
Chapter 15: not started.
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.
Why
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Compare with your answer.
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.
- Identifies the two major components of total wealth: non-human wealth (financial and housing wealth) and human wealth.
- Explains that human wealth is calculated as the present discounted value of expected future after-tax labor income.
- Mentions the formation of expectations regarding future earnings, taxes, and interest rates.
- Explains that the consumer chooses a smooth consumption level over their life horizon and borrows or saves to reconcile current disposable income with that optimal consumption path.
Your progress
Chapter 15: not started.