« previous next »

Author Question: The intertemporal budget constraint tells us that A) the income earned in a lifetime will be ... (Read 56 times)

formula1

  • Hero Member
  • *****
  • Posts: 666
on: Jun 30, 2018
The intertemporal budget constraint tells us that
 
  A) the income earned in a lifetime will be evenly divided between consumption and saving.
  B) the present value of lifetime consumption equals the present value of lifetime income.
  C) household consumption is based on permanent income and not transitory income.
  D) consumption smoothing only occurs in years when income is greater than consumption.

Question 2

Suppose you need an estimate of future inflation (to decide, for example, whether a particular security is a good investment). How might you formulate a rational expectation?
 
  What will be an ideal response?


fur

  • Sr. Member
  • ****
  • Posts: 309
Reply #1 on: Jun 30, 2018
Answer to Question 1

B

Answer to Question 2

A rational expectation is a best possible guess using all available information. Since any prediction is prone to error, the best strategy is to collect several predictions and, as much as possible, assess the plausibility of the underlying methods, paying particular attention to assumptions about future economic conditions.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

There are more sensory neurons in the tongue than in any other part of the body.

Did you know?

A cataract is a clouding of the eyes' natural lens. As we age, some clouding of the lens may occur. The first sign of a cataract is usually blurry vision. Although glasses and other visual aids may at first help a person with cataracts, surgery may become inevitable. Cataract surgery is very successful in restoring vision, and it is the most frequently performed surgery in the United States.

Did you know?

Acetaminophen (Tylenol) in overdose can seriously damage the liver. It should never be taken by people who use alcohol heavily; it can result in severe liver damage and even a condition requiring a liver transplant.

Did you know?

Colchicine is a highly poisonous alkaloid originally extracted from a type of saffron plant that is used mainly to treat gout.

Did you know?

There are 60,000 miles of blood vessels in every adult human.

Sam Houston—and his horse—earned this heroic tribute. At the Battle of San Jacinto, a musket ball sh Sam Houston—and his horse—earned this heroic tribute. At the Battle of San Jacinto, a musket ball sh
A passenger train crosses Stony Creek Bridge in the Rocky Mountains in 1878. Railroads were importan A passenger train crosses Stony Creek Bridge in the Rocky Mountains in 1878. Railroads were importan
Ten Leading Causes of Death in High-Income Countries, 2008 Ten Leading Causes of Death in High-Income Countries, 2008
Relationship between Income Inequality and Sociopolitical Instability Relationship between Income Inequality and Sociopolitical Instability
Capital’s Share of Income in a Cross-Section of Countries Capital’s Share of Income in a Cross-Section of Countries
Percentage of higher-income Canadian households Percentage of higher-income Canadian households
Video: HDL (high density lipoprotein)

For a complete list of videos, visit our video library