# Macroeconomics

Question 1 (10 marks)
Explain the assumption regarding consumers’ behavior in the life-cycle-permanent-income hypothesis which needs to be changed in order to explain the presence of precautionary, or buffer-stock saving.
Question 2 (10 marks)
Say Ali defines his permanent income as the average income this year and the past 4 years’ incomes. Furthermore he always consume 3/5 of his permanent income. His incomes record over these years has been:
Yt = 46,000
Yt-1 = 42,000
Yt-2 = 36,000
Yt-3 = 32,000
Yt-4 = 30,000
If next year his income increases to Yt+1 = 50,000 by how much will Ali’s consumption change between year t and year t+1?

Don't use plagiarized sources. Get Your Custom Essay on
Macroeconomics
Just from \$13/Page
Grab A 14% Discount on This Paper
Pages (550 words)
Approximate price: -
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Try it now!

Total price:
\$0.00

How it works?