About consumption. to. Describes what the permanent income hypotheses and the Life Cycle hypothesis consist of. b. If so, what are the similarities and differences between the life cycle and permanent income hypotheses? 2. Suppose you can calculate permanent income as the average income of the last seven years; specifically: = −1 −2 −3 −4 −5 6 7 Likewise, suppose that consumption is given by C = 0.78YP. to. Now suppose you earned 10,000 monetary units per year for the last 10 years, what is your permanent income? b. Suppose that next year (period t I) you will earn 20,000 monetary units. What is the new YP now? c. What is the consumption this year and next? d. What is the short-term marginal propensity to consume (PMgC)? and. What is your long-term P MC?

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a Permanent Income Hypothesis and Life Cycle Hypothesis 1 Permanent Income Hypothesis PIH Proposed by Milton Friedman in 1957 Suggests that individual... View the full answer