Consumption
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quiz Questions
Q61
According to the permanent income hypothesis, how does a consumer alter their aggregate saving choice when experiencing a temporary, short-term reduction in disposable income?
They increase private saving to hedge inflation risk
They temporarily reduce their saving rate or draw down accumulated savings to smooth consumption
They halt consumption choices entirely to balance assets
Their marginal propensity to consume falls to zero
Explanation
Friedman's model indicates that temporary income shocks do not reduce long-run consumption goals. Instead, the consumer runs down savings or borrows (dissaves) to smooth consumption choices.
Q62
Which microeconomic curve paths all utility-optimized asset combinations of two goods selected by a consumer as the price of one item fluctuates, holding income and alternate prices constant?
Income expansion trajectory
Price Consumption Curve
Engel curve alignment map
Substitution path envelope
Explanation
The Price Consumption Curve (PCC) maps out the locus of optimal commodity combinations chosen by a consumer as a single product price shifts under stable income parameters.