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Course 45159
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According to the Permanent Income Hypothesis, only permanent changes in income affect consumption and saving.
Jacob consumes the same quantity every period, and expects to live for T more periods. Unexpectedly, he learns that his salary will be permanently reduced by 50% starting next period. His current income is unchanged.
According to the Permanent Income Hypothesis, which of the following statements is correct?
According to the Life-Cycle Hypothesis, if retirement is fully anticipated, consumption should fall sharply when retirement begins because labour income falls
Dan maximises: U(c_1,c_2)=u(c_1)+\beta u(c_2),where
u'>0 and
u''. Dan has positive income in both periods, with
y_1 \neq y_2, and can borrow and lend at the interest rate
r>0. Dan's discount factor satisfies
\beta=\frac{1}{1+r}.This is the same two-period consumption problem studied in class; no change in the setup is intended.
Which of the following statements is correct?
The hourly wage is the price of leisure in terms of the consumption good.
Mia and Leo have identical utility functions, defined over consumption, c, and leisure, l. They also have the same amount of non-labour income. As in class, assume leisure is a normal good. Despite this, Mia works more hours than Leo.
Which of the following could explain this scenario?
A firm chooses its desired future capital stock, K^f. Initially, the firm chooses
K_0^f. Then the firm learns that the depreciation rate,
\delta, will increase and that future Total Factor Productivity,
A^f , will also increase. The interest rate is positive and remains unchanged, and the price of investment goods is constant over time:
p_k=p_k^f.
Buying one additional unit of capital costs p_k units of output and takes place one period before the capital is used in production. In the following period, the additional unit of capital increases output by
MPK^f. After production, the undepreciated part of the capital can be sold at a price
p_k^f per unit.
This is the same timing and investment problem studied in class; no change in the setup is intended.
Which of the following statements is correct?
Harper has an income of 100 units in period 1 and 200 units in period 2. Lily has an income of 200 units in period 1 and 100 units in period 2. Both can borrow or save at the interest rate r>0, and both have discount factor
\beta= \frac{1}{1+r}.
This is the same two-period consumption problem studied in class; no change in the setup is intended.
Which of the following statements is correct?
Last month, the year-on-year (YoY) CPI inflation rate was 5%. This month, the CPI falls by 0.2% relative to last month.
Which of the following statements is correct?
The production function is given by: Y=AK^{0.4 } + AN^{0.6},
A>0
Which of the following statement is correct?