1) These hypotheses agree that consumption is not dependent on current income alone, but economists continue to debate the varying importance of other determinants. 2) Consumers evaluate their short-run and long-run situation and adjust their spending accordingly, counteracting policies that are implmented by the Fed.
1) Instant Gratification it difficult to implement policies because consumption decisions change overtime and a policy today might not affect the economy in the same way tomorrow.
2) Random-walk assumes everyone uses all available information to optimal forecast, which means only unanticipated policy changes, will effect consumption.
1.Real business cycle theorists call recessions periods of technological regress. However, critics do not believe that technological progress will decline. 2.According to Prescott and his view of the Solow residual, a technology shock is a significant cause of growth fluctuations.
1. While consumption is reflective of people’s permanent incomes, rational expectations push people to save a portion of their income, with intentions of being able to maintain a constant consumption through life.
2. Fluctuations in employment and output are explained through two contrasting views of the Real Business Cycle and Keynesian Economics.
1. The life-cycle hypothesis says that people save with retirement in mind, however instant gratification proposes that people are not as rational as this theory suggests.
2. The real business cycle theory and new Keynesian economics are two conflicting theories that explain short-run economic fluctuations.
1. According to the permanent-income hypothesis, consumptions depends on permanent income; however, most other cunsumptions theories relate consumption to current income.
2. In order to fully understand the implications of a tax policy analysis beyond the Keynesian consumption function must be done, for example the permanent-income hypothesis should be taken into consideration.
1) One of the most radical assumptions of the real business cycle theory is that monetary policy has no effect on real variables.
2) The pull of instant gratification implies that consumers are time-inconsistent and may alter their consumption decisions based on the amount of time that passes.
1. If individuals’ consumption is rational and informed, the affects of monetary and fiscal policy are still uncertain because each includes positive and negative incentives to save. 2. In the theory of the real business cycle, only real variables affect economic growth, nominal variables, like monetary policy, have no affect because of fully flexible prices and the neutrality of money.
1. According to the life cycle hypothesis the reason that people save over the course of their lifetime is so that they do not have to experience a drop in income during retirement.
2. One reason that people fail to save a sufficient amount is due to the temptation to receive instant gratification.
1. The Life-Cycle Hypothesis states that both income and saving vary over a person's lifetime, and consumption depends on a person's lifetime income; however, the elderly do not dissave as much as the model predicts. 2. The Pull of Instant Gratification idea makes a point that consumers are more patient in the LR than in the SR, meaning that their preferences may be time-inconsistent.
1) In the period after a policy announcement, the FED should ignore incentives to renege the policy and implicate it despite potential negative effects.
2) To control real business cycles, policy makers should monitor change in technology and in labor incentives as best as possible.
1. Due to recent buffers against the need for precautionary saving, virtually the sole purpose for the elderly not to spend all of their wealth is to pass it on to their children and younger generations of relatives.
2. The permanent income hypothesis has roots in the Ricardian equivalence.
1.According to the real business cycle theory, periods of high employment and output are driven by technological shocks to productivity. 2.Under the permanent-income hypothesis, taxes must have a major and permanent reduction in tax rates in order to have a substantial effect on consumption.
1. According to the Permanent-Income Hypothesis, transitory changes in taxes will have an insignificant effect on consumption and aggregate demand.
2. The Random-Walk Hypothesis infers that only unexpected policy alterations can change consumption, since consumers consume based on their current expectations of their ifetime incomes.
1. According to the theory of real business cycles, all short-run economics fluctuations should be explained with the same assumptions of the classical model (long-run).
2. Consumer income, whether it is randomly distributed, able to be forecasted, or fixed, is the most argued variable in aggregate consumption.
~Contrary to the traditional views on consumption, new theories posit that consumers are forward looking and therefore do not solely base their consumption on current income.
~According to Real Business theory, Fed policy is impotent since money is neutral in both the long and short run.
18 comments:
1) These hypotheses agree that consumption is not dependent on current income alone, but economists continue to debate the varying importance of other determinants.
2) Consumers evaluate their short-run and long-run situation and adjust their spending accordingly, counteracting policies that are implmented by the Fed.
1) Instant Gratification it difficult to implement policies because consumption decisions change overtime and a policy today might not affect the economy in the same way tomorrow.
2) Random-walk assumes everyone uses all available information to optimal forecast, which means only unanticipated policy changes, will effect consumption.
1.Real business cycle theorists call recessions periods of technological regress. However, critics do not believe that technological progress will decline.
2.According to Prescott and his view of the Solow residual, a technology shock is a significant cause of growth fluctuations.
1. While consumption is reflective of people’s permanent incomes, rational expectations push people to save a portion of their income, with intentions of being able to maintain a constant consumption through life.
2. Fluctuations in employment and output are explained through two contrasting views of the Real Business Cycle and Keynesian Economics.
1. The life-cycle hypothesis says that people save with retirement in mind, however instant gratification proposes that people are not as rational as this theory suggests.
2. The real business cycle theory and new Keynesian economics are two conflicting theories that explain short-run economic fluctuations.
1. According to the permanent-income hypothesis, consumptions depends on permanent income; however, most other cunsumptions theories relate consumption to current income.
2. In order to fully understand the implications of a tax policy analysis beyond the Keynesian consumption function must be done, for example the permanent-income hypothesis should be taken into consideration.
1) One of the most radical assumptions of the real business cycle theory is that monetary policy has no effect on real variables.
2) The pull of instant gratification implies that consumers are time-inconsistent and may alter their consumption decisions based on the amount of time that passes.
1. If individuals’ consumption is rational and informed, the affects of monetary and fiscal policy are still uncertain because each includes positive and negative incentives to save.
2. In the theory of the real business cycle, only real variables affect economic growth, nominal variables, like monetary policy, have no affect because of fully flexible prices and the neutrality of money.
1. According to the life cycle hypothesis the reason that people save over the course of their lifetime is so that they do not have to experience a drop in income during retirement.
2. One reason that people fail to save a sufficient amount is due to the temptation to receive instant gratification.
1. The Life-Cycle Hypothesis states that both income and saving vary over a person's lifetime, and consumption depends on a person's lifetime income; however, the elderly do not dissave as much as the model predicts.
2. The Pull of Instant Gratification idea makes a point that consumers are more patient in the LR than in the SR, meaning that their preferences may be time-inconsistent.
1) In the period after a policy announcement, the FED should ignore incentives to renege the policy and implicate it despite potential negative effects.
2) To control real business cycles, policy makers should monitor change in technology and in labor incentives as best as possible.
1. Due to recent buffers against the need for precautionary saving, virtually the sole purpose for the elderly not to spend all of their wealth is to pass it on to their children and younger generations of relatives.
2. The permanent income hypothesis has roots in the Ricardian equivalence.
1.According to the real business cycle theory, periods of high employment and output are driven by technological shocks to productivity.
2.Under the permanent-income hypothesis, taxes must have a major and permanent reduction in tax rates in order to have a substantial effect on consumption.
1. According to the Permanent-Income Hypothesis, transitory changes in taxes will have an insignificant effect on consumption and aggregate demand.
2. The Random-Walk Hypothesis infers that only unexpected policy alterations can change consumption, since consumers consume based on their current expectations of their ifetime incomes.
1. According to the theory of real business cycles, all short-run economics fluctuations should be explained with the same assumptions of the classical model (long-run).
2. Consumer income, whether it is randomly distributed, able to be forecasted, or fixed, is the most argued variable in aggregate consumption.
1. People save for retirement, precautionary saving, and bequests.
2. Technology shocks are positively correlated with economic fluctuations.
If individuals were always rational, they would consider their long-term income when making consumption decisions.
The lure of instant gratification from current consumption may override any rational expenditure behavior.
~Contrary to the traditional views on consumption, new theories posit that consumers are forward looking and therefore do not solely base their consumption on current income.
~According to Real Business theory, Fed policy is impotent since money is neutral in both the long and short run.
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