Question

Question 1 1 pts By 1 July 2008, more than 70 million American households had received tax rebates of $950 on average, as a part of a temporary economic stirpulus policy. According to Friedman's permanent income model (and holding all other things equal), aggregate consumption in 2008 O should have increased by approximately the amount of the tax rebate O should have increased by more than the tax rebate should have increased by significantly less than the amount of the tax rebate. O should have not changed, as the permanent income of household is not affected. Question 2 1 pts Which of the following is NOT part of business investment (I)? O Aretailer increases its inventory before the holidays O Acompany buys back shares of its publicly-traded stock O Adeveloper constructs a new apartment building. O A firm buys more equipment for its factory. Question 3 1 pts Which of the following statements about marginal propensities is true? O Low-income households are likely to have the marginal propensity to save that is higher than their marginal propensity to consume. O If precautionary saving rises in an economy, this means that the marginal propensity to save has gone down. O Relatively high-income households have a lower MPC than relatively low-income households. O Looking at the standard Keynesian consumption function (graph of C versus Y), we see that MPC goes up as national income goes up.

Answer 1

1.

D

According to the given permanent income model, the consumption increases when income over the lifetime period increases. Hence, a temporary support, not affecting the lifetime income increase, is not going to affect the consumption.

2.

B

It is not an investment, rather it is a change of ownership.

3.

C

It is observed that with relatively higher income people, MPC is lower than those people who have low income.