The Permanent Income Model Implies the Same Relationship Between Changes
The permanent income model implies the same relationship between changes in consumption and income as
A) the backward-looking model.
B) the life-cycle model.
C) the liquidity constraint model.
D) the Keynesian multiplier.
E) None of these
According to the forward-looking model, consumption
A) reacts mostly to a permanent change in income.
B) reacts mostly to a temporary change in income.
C) reacts equally to permanent or temporary changes in income.
D) is always subject to a liquidity constraint.
E) does not react to either temporary or permanent changes in income.
The permanent income model implies that
A) a permanent tax cut has a larger effect on consumption than does a temporary tax cut.
B) a permanent tax cut has a smaller effect on consumption than does a temporary tax cut.
C) tax cuts should not be used because consumers are not rational.
D) both permanent and temporary tax cuts are effective in changing consumption.
E) both permanent and temporary tax cuts have no effects on consumption.
According to the permanent income model, the marginal propensity to consume is larger in the case of a permanent change in income than a temporary change in income.