Question

A "helicopter drop" or "helicopter money” is a term economists use to describe a case where households get money that they weren't expecting. The 2001 tax refunds are one of the most studied examples of this phenomenon. How does the permanent income hypothesis suggest people will spend this helicopter money? Would we expect people to spend most of this money or will they save most of it for the future? (0.5 points) Suppose in 2018, the government gave everyone $900 in "helicopter money": • If Sally buys a durable good with her helicopter money, is this consistent with the permanent income hypothesis? Why or why not? (0.5 points) • If Dave uses his helicopter money to pay off part of his student loans, is this consistent with the permanent income hypothesis? Why or why not? (0.5 points) Suppose the government had to borrow to pay for the helicopter money. Does this change how people think about the value of the helicopter money? Why or why not? (0.5 points)

Answer 1

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