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Explain How the Permanent-Income Hypothesis Can Be Used to Explain

question 117

Essay

Explain how the permanent-income hypothesis can be used to explain "multiplier effects" in an economy.


Definitions:

Covariance

A measure indicating the extent to which two variables change in tandem. It shows whether increases in one variable correspond with increases (positive covariance) or decreases (negative covariance) in the other one.

Pearson Correlation

A measure of the linear correlation between two variables, represented by a value between -1 and 1.

Null Hypothesis

Re-stated: The hypothesis that assumes no real effect, variance, or difference within the scope of the experimental and observational study parameters.

Covariance

A measure indicating the extent to which two random variables change in tandem.

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