According to the life-cycle hypothesis, A) the present value ...

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According to the life-cycle hypothesis,
 
  A) the present value of lifetime consumption equals the future value of lifetime income.
  B) the income earned in a lifetime will be evenly divided between consumption and saving.
  C) household consumption depends on income that households expect to receive each year, and financial markets are used to smooth consumption in response to changes in transitory income.
  D) households use financial markets to transfer funds from periods when income is high to periods when income is low.

Question 2

Refer to Figure 9.1. Assume the economy is initially at point A. The initial change resulting from a recession caused by an increase in oil prices is best represented by which short-run equilibrium combination of price level and real GDP?
 
  A) P2; Y2
  B) P3; Y3
  C) P2; Y3
  D) P3; Y2

[mbcrismon]

Answer to Question 1

D

Answer to Question 2

C

[newbem]

Thank you

[mbcrismon]

No problemo