Knowing the Desired Size of the Bequest Is Important in Predicting

question 53

Multiple Choice

Knowing the desired size of the bequest is important in predicting the path of future consumption,

• A) but unfortunately it is inconsistent with the basic assumptions of the permanent income hypothesis.
• B) but unfortunately it is inconsistent with the basic assumptions of both the permanent income hypothesis and the life cycle hypothesis.
• C) but not knowing its precise size does little to undermine the general implications of any of the forward-looking consumption theories.
• D) but theories that explain bequest behavior are totally inconsistent with any forward-looking consumption theory.
• E) none of the above.

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Definitions:

Natural Rate

The long-term rate of unemployment or economic output under prevailing conditions, considered sustainable without causing inflation.

Unemployment Rate

The percentage of employment-seeking individuals in the labor force who are without jobs.

Unemployment Benefits

Payments made by the government or a designated body to unemployed individuals, intended to provide financial assistance while they seek new employment.

Economic Growth

An increase in the output of goods and services in an economy over a period, often measured by the rise in Gross Domestic Product (GDP).