Exam 16: Understanding Consumer Behavior

Empirical studies of Franco Modigliani's life-cycle hypothesis show that:

According to the life-cycle model, when wealth and income increase together in the long run, the average propensity to consume.

If consumers obey the permanent-income hypothesis and have rational expectations, then policy changes affect consumption when the policy changes:

In Irving Fisher's two-period consumption model, if Y₁ = 20,000, Y₂ = 15,000, and the interest rate r is 0.50 (50 percent), then the maximum possible consumption in period two is:

In Irving Fisher's two-period consumption model, if Y₁ = 15,000, Y₂ = 20,000, the interest rate r is 0.50 (50 percent), and there is a constraint on borrowing that is binding, then C₁ equals:

A consumer spending excessively today, intending to start saving for retirement tomorrow, but deciding to continue spending when tomorrow arrives is an example of:

The marginal rate of substitution between first-period consumption and second-period consumption:

List the three key properties of Keynes's consumption functions.

According to Modigliani's life-cycle hypothesis, if a consumer wants equal consumption in every year and the interest rate is zero, then the marginal propensity to consume out of wealth ______ as years ______ decrease.

The distinction between current income and expected future income is a critical distinction among the six theories of consumption. Which theories place greater emphasis on current income and which theories place greater emphasis on future expected income? Why does this distinction matter for economic policymakers?

A borrowing constraint that is not binding occurs when a consumer wants to consume ______ in period one than he or she earns in period(s) _____.

Economist David Laibson suggests that people end up saving less than they wish because of:

John Maynard Keynes believed that the average propensity to consume:

In the Fisher two-period model, the consumer achieves his or her optimum combination of current and future consumption by selecting:

Why did Keynes's conjectures hold up well in the studies of household data and short time-series, but fail when long time-series were examined?

Milton Friedman argued that, over long periods of time, the average propensity to consume is constant because, over these long periods of time:

According to Modigliani's life-cycle hypothesis, the consumption function shifts upward as _____ increases.

In Irving Fisher's two-period model, if the consumer is initially saving in period one and the real interest rate rises, then first-period consumption will:

The life-cycle model predicts that if the proportion of the population that is elderly increases over the next 20 years, then the national saving rate ______ over the next 20 years.

If the Keynesian consumption function is written as $C = \bar { C } + C Y$ then the average propensity to consume is: