Using the Neoclassical Model of Consumption, an Implication of the Permanent-Income

question 51

Multiple Choice

Using the neoclassical model of consumption, an implication of the permanent-income hypothesis is ________ because ________.

• A) consumption smoothing; of diminishing marginal utility
• B) that permanent income follows a random walk; of aggregate demand shocks
• C) that wealth is constant; real interest rates are, more or less, constant
• D) a low discount factor; of the borrowing constraint
• E) no borrowing; income in the future is higher

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Definitions:

Straight-Line Method

A method of calculating depreciation and amortization, dividing the difference between an asset's cost and its salvage value by the number of years it is expected to be used.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal annual amounts.

Net Income Attributable

The portion of net income (profit) that is available to the shareholders, after accounting for dividends to preferred stockholders and other adjustments.

Noncontrolling Interest

A stake in a company that is less than 50%, implying that the holder does not have control over the company's operations.