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Is the following statement True, False, or Uncertain? The answers should be specifc and concise, preferably...

Is the following statement True, False, or Uncertain? The answers should be specifc and concise, preferably not exceeding a couple of sentences. 'Consumption behavior features excess sensitivity when examined in macroeconomic data.'

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Answer #1

True. Carroll (2001b) argues however, that those studies may equally be interpreted as identifying which households have a stronger precautionary saving motive. Carroll and Kimball (2005) show the formal equivalence of a model with a liquidity constraint and income uncertainty with a model of precautionary saving. It is extremely difcult to identify separately liquidity constrained households from those saving for precautionary reasons more generally and the two effects interact with one another. An inability to borrow when income is low provides an additional motive for accumulating assets when income is high. Consequently, we prefer simply to indicate which households display greater evidence of excess sensitivity, and to try to establish what characteristics are associated with that propensity.

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