Question 1
A medical student is likely to consume more than a high school student because the
◦ medical student bases consumption on current income while the high school student does not.
◦ high school student bases consumption on permanent income while the medical student does not.
◦ medical student's permanent income is likely higher than the high school student's permanent income.
◦ medical student and the high school student both base consumption on current income.
Question 2
Permanent income is
◦ current income.
◦ expected future income.
◦ the average level of expected future income.
◦ accumulated wealth.