Refer to the following table when answering the following questions.
Table 11.1: Real Growth Rates: 1970-2015
-You are given the data in Table 11.1, which covers the period 1970-2015. "Mean" is the average growth over the period and "St Dev" is the standard deviation of the growth (a measure of volatility) of real output, consumption, investment, and government expenditures. From this information, you conclude that:
A) households base their consumption on permanent income.
B) households do not consumption-smooth.
C) firms rely solely on "animal spirits" when considering new investment.
D) government expenditures are always greater than household expenditures.
E) households base their consumption patterns on interest rates only.

Question

Refer to the following table when answering the following questions.
Table 11.1: Real Growth Rates: 1970-2015 
-You are given the data in Table 11.1, which covers the period 1970-2015. "Mean" is the average growth over the period and "St Dev" is the standard deviation of the growth (a measure of volatility) of real output, consumption, investment, and government expenditures. From this information, you conclude that:
A) households base their consumption on permanent income. 
B) households do not consumption-smooth. 
C) firms rely solely on "animal spirits" when considering new investment. 
D) government expenditures are always greater than household expenditures. 
E) households base their consumption patterns on interest rates only.

Quizplus · Accepted Answer

The fact that the standard deviation of consumption growth is lower than the standard deviation of income growth suggests that households base their consumption on permanent income rather than on short-term changes in income.

Refer to the Following Table When Answering the Following Questions