Examine the lifecycle hypothesis of consumption. (7marks) b). Given Friedman's permanent income hypothesis as C=kY,, where: Y?
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Question:
Examine the lifecycle hypothesis of consumption.
(7marks)
b). Given Friedman's permanent income hypothesis as C=kY,," where: Y? =
permanent income and that Y = BY, + (1 - p)Y,, +?(1 - p)²Y1-2 +· -...+B(1-B)"Y"
i. Derive the reduced form of the permanent income.
(4marks)
(ii). Base on your answer in (i), give an expression for investment model, assuming that I = S.
(2marks)
(iii). Outline weaknesses of the permanent income hypothesis.
(2marks)
Related Book For
Federal Taxation 2016 Comprehensive
ISBN: 9780134104379
29th Edition
Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson
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