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:

New England

A region located in the northeastern corner of the United States comprising six states: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont, known for its colonial history, distinct seasons, and cultural heritage.

Triangular Trade

A historical trade system in the 16th through 19th centuries involving the transatlantic slave trade among Europe, Africa, and the Americas.

Enslaved Africans

Describes Africans who were forcibly taken from their homeland and subjected to slavery, primarily in the Americas and Europe, from the 16th to the 19th centuries.

The Americas

A landmass comprising the continents of North America and South America, including associated islands and regions, known for its diverse cultures, languages, and histories.