Last year, Jim and Matthew both spent about two third of their income on consumption. This year, each receive alarge bonus at work. Jim immediately spends two third of his bonus on a new TV. Matthew increases consumptionslightly, spending a small percentage of the bonus each month. Which of the following is true?O a. Both Jim and Matthew's behaviors are more consistent with a Keynesian consumption function thanFriedman's permanent income hypothesisO b. Both Jim and Matthew's behaviors are more consistent with Friedman's permanent income hypothesis thana Keynesian consumption functionO c. Jim's behavior is most consistent with Friedman's permanent income hypothesis, while Matthew's is moreconsistent with a Keynesian consumption functiond. Jim's behavior is most consistent with a Keynesian consumption function, while Matthew's is moreconsistent with Friedman's permanent income hypothesisA firm produces 1000 units of its product, which it expects to be able to sell to the market. It actually only sells 900units as people would rather save money to purchase goods in the future. Which of the following theories is thisbehavior most inconsistent with?O a. Rational ExpectationsO b. Say's LawO c. The Classical DichotomyO d. Keynesian EconomicsAssume the natural rate of unemployment is 5% and expected inflation is 2%. The Federal Reserve unexpectedlyincreases the money supply, which pushes inflation to 4%. If the Friedman-Phelps adaptive expectations model ofthe Phillips Curve holds, we would expectO a. Unemployment to rise in the short run and in the long run return to the natural rate of unemployment asinflation expectations fallO b. Unemployment to fall in the short run and in the long run return to the natural rate of unemployment asinflation expectations fallO c. Unemployment to fall in the short run and in the long run return to the natural rate of unemployment asinflation expectations increaseO d. Unemployment to rise in the short run and in the long run return to the natural rate of unemployment asinflation expectations increase

We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Last year, Jim and Matthew both spent about two third of their income on consumption. This year, each receive a large bonus at work. Jim immediately spends two third of his bonus on a new TV. Matthew increases consumption slightly, spending a small percentage of the bonus each month. Which of the following is true? a. Both Jim and Matthew's behaviors are more consistent with a Keynesian consumption function than Friedman's permanent income hypothesis b. Both Jim and Matthew's behaviors are more consistent with Friedman's permanent income hypothesis than a Keynesian consumption function c. Jim's behavior is most consistent with Friedman's permanent income hypothesis, while Matthew's is more consistent with a Keynesian consumption function d. Jim's behavior is most consistent with a Keynesian consumption function, while Matthew's is more consistent with Friedman's permanent income hypothesis

Last year, Jim and Matthew both spent about two third of their income on consumption. This year, each receive a large bonus at work. Jim immediately spends two third of his bonus on a new TV. Matthew increases consumption slightly, spending a small percentage of the bonus each month. Which of the following is true? a. Both Jim and Matthew's behaviors are more consistent with a Keynesian consumption function than Friedman's permanent income hypothesis b. Both Jim and Matthew's behaviors are more consistent with Friedman's permanent income hypothesis than a Keynesian consumption function c. Jim's behavior is most consistent with Friedman's permanent income hypothesis, while Matthew's is more consistent with a Keynesian consumption function d. Jim's behavior is most consistent with a Keynesian consumption function, while Matthew's is more consistent with Friedman's permanent income hypothesis

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

If the intersection of AD and SRAS occurs at $21 trillion GDP but full employment GDP (LRAS) is at $22 trillion GDP, which of the following policy choices would help move the economy toward full employment? a) Lowering income taxes and payroll taxes for all employees. b) All of the choices would help increase AD and bring the economy closer to full employment. c) increasing the money supply to lower interest rates. d) Increases government spending on infrastructure. e) Sending out stimulus checks to everyone earning less than $100,000 per year.
Consider a two-period model in which the goverment introduces a tax on interest earnings. This means that borrowers pay a net interest rate of r, however lenders (savers) receive a net interest rate of (1 – t)r on their savings, where t is the tax rate withheld by the government and is a multiplication sign. Let r = 8 percent and t = 28 percent. Consider a consumer who is a saver. Answer parts a), b), c) and d) below. Round your numerical answer in part a) to 3 decimal places. a). The relative price of consumption today to consumption tomorrow for this saver is b). Suppose the tax rate increases. How does the saver's relative price of consumption today change? A. Consumption today has the same price relative to consumption tomorrow. B. Consumption today becomes relatively more expensive C. Consumption today becomes relatively cheaper c). As a result, the substitution effect shows that A. Consumption today increases, while consumption tomorrow decreases B. Consumption today remains…
Compare and critically evaluate the position of the neoclassical and Keynesian economics regarding the proposals that the government budget should be balanced each year (i.e. no budget deficits).
2.1 According to the permanent income hypothesis, how will a representative consumer's bor- rowing and consumption respond to: 1. An anticipated temporary decrease in income at t = 2. 2. An anticipated permanent decrease in income (at time periods t = 1 and t = 2) when it occurs. 3. Are the answers different if the changes in income are unanticipated, i.e. if they come as a surprise to the consumer? Comment on the size of the marginal propensity to consume.
Consider a closed economy with no government, where aggregate demand is determined by autonomous consumption, investment (which is independent of output), and the marginal propensity to consume. a) Given that autonomous consumption is 20, investment is also 20, and the marginal propensity to consume is 0.6, write out an equation for aggregate demand (AD) in this economy. b) Given this aggregate demand equation, and the equilibrium equation Y = AD, use algebra to find the equilibrium level of Y. (2 marks) c) Draw a diagram with output (Y) on the x-axis and aggregate demand (AD) on the yaxis. Draw two lines on this diagram: (i) Y = AD, and (ii) the aggregate demand function from part (a). Label the intercept of the AD line, and the point where the two lines intersect, with numerical values. d) Suppose that the marginal propensity to consume falls from 0.6 to 0.5. What would the new equilibrium level of Y be? Illustrate your answer in the diagram you drew for part (c). e)…
Derive and use the equilibrium in the goods market (Keynesian cross) to explain how a drop in consumption during the pandemic can lead to a decrease in production.
Consider two standard Keynesian models. In Model 1, there are two types of consumers, Type A, who have low marginal propensities to consume, and Type B, who have high marginal propensities to consume. In Model 2, there are only Type B consumers. Then, an increase in the exogenous government purchases would lead to higher output in Model 1 than in Model 2. Answer true or false. Please briefly explain your answer.
In the Keynesian model, if the economy is experiencing a recessionary gap of $825 billion and the marginal propensity to save is .20, which one of the following combinations of spending and taxing changes should the government implement in order to eliminate the gap? 1. Increase government spending by $350 billion and decrease taxes by $350 billion. 2. Decrease government spending by $125 billion and increase taxes by $50 billion. 3. Decrease government spending by $250 billion and increase taxes by $150 billion. 4. Increase government spending by $600 billion and decrease taxes by $225 billion. 5. Increase government spending by $100 billion and decrease taxes by $100 billion. 6. Increase government spending by $125 billion and decrease taxes by $50 billion.
b. From the Intertemporal Choice Model, many theories (non-Keynesian theories of Consumption) came into being. Using graphical and mathematical expressions, compare and contrast the following theories on consumption behaviours: i. Milton Friedman: Permanent-Income Hypothesis Robert Hall: Random Walk Hypothesis Franco Modigliani: Life-Cycle Hypothesis ii. iii.
Consider the Keynesian consumption function Yt =B₁ + B₂x2t + εt ( where yt is per capita consumption, and x2+ is per capita income. The coefficient B₂ is interpreted causally as the marginal propensity to consume, and we expect 0