Question

PLEASE ANSWER ALL IF POSSIBLE. GOD WILL BLESS YOU.

62. According to which theory (hypothesis) of consumption would a doctor who recently completed his or her residency likely shift his or her consumption function upward? (a) life-cycle hypothesis; (b) relative income hypothesis; (c) absolute income hypothesis; (d) permanent income hypothesis.

63. An inversion of the Treasury yield curve has been associated over many economic cycles with: (a) hyperinflation; (b) a recession 12 to 18 months hence; (c) an exceedingly loose monetary policy stance domestically; (d) none of the above.

64. The most accurate way to analyze “velocity” is to think of it as: (a) the growth rate of current dollar GDP; (b) the strength of retail activity; (c) the number of dollars of national income per dollar of money supply; (d) the products of real output times the price level.

80. Prospective investors try to estimate the discounted stream of returns over time in order to account for: (a) the time value of money; (b) changing seasonal patterns of spending; (c) variable costs of financing investments; (d) all of the above.

Answer 1

62 )b)Relative income hypothesis.

The consumption function is written as C=f(y)ie consumption is a function of income.Keynes developed the absolute income hypothesis and Simon Kuznet research led to the developement of  the relative hypothesis ,permanent hypothesis and life cycle hypothesis Keynes believed that Marginal propensity to consume decreases as income increases. Kuznet on the other hand believed that MPC remains fairly constant regardless of the absolute level of national income.

The relative income theory states that consumption depends not on absolute level of income but on relative income ie income relative to the income of the society where an individual lives. The relative income hypothesis states that marginal propensity to consume is constant which causes the consumption function to shift upward.