In the context of the permanent income hypothesis, permanent consumption is:

Consumption determined by transitory income.

Consumption that varies with business cycles.

Consumption based on current income.

Consumption determined by permanent income.

According to the relative income hypothesis, consumption is influenced by:

Anticipated future income only.

Both current income and previous peak income.

Transitory income fluctuations.

How does the permanent income hypothesis predict households' reactions to changes in income?

Households react the same way to both permanent and transitory income changes.

Households increase consumption proportionally for both permanent and transitory income changes.

Households increase consumption only for permanent income changes.

Households increase consumption only for transitory income changes.

The permanent income hypothesis suggests that households base their consumption on:

Anticipated future income only.

Which assumption of the permanent income hypothesis has been criticized by economists?

The assumption of a constant average propensity to consume.

The assumption of zero marginal propensity to consume from transitory income.

The assumption that permanent consumption is independent of permanent income.

The assumption that transitory consumption is independent of transitory income.

What distinguishes the short-run consumption function from the long-run consumption function according to the permanent income hypothesis?

Short-run function is based on transitory consumption, while long-run function is based on permanent consumption.

Short-run function is influenced by actual income fluctuations, while long-run function is based on permanent income.

Short-run function is constant, while long-run function varies with business cycles.

Short-run function is based on anticipated future income, while long-run function is based on current income.

What are the implications of the permanent income hypothesis for policy measures like tax rebates?

Permanent income hypothesis suggests that tax rebates are highly effective in altering consumption.

Permanent income hypothesis suggests that tax rebates have no effect on consumption patterns.

Tax rebates have larger impacts when interpreted as permanent changes in income.

Tax rebates have larger impacts when interpreted as temporary changes in income.

How does the permanent income hypothesis explain the difference in consumption during peak and trough of business cycles?

Consumption is higher during the peak and lower during the trough due to changes in permanent income.

Consumption is lower during the peak and higher during the trough due to changes in transitory income.

Consumption is higher during the peak and lower during the trough due to changes in transitory income.

Consumption remains constant during both peak and trough of business cycles.

Relative and Permanent Income Hypothesis Free MCQ Practice Test with Solutions

	Macro Economics 59 videos\|61 docs\|29 tests

	Macro Economics 59 videos\|61 docs\|29 tests

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