Question

Using the neoclassical model of consumption, an implication of the permanent-income hypothesis is 38. because a. consumption smoothing; of diminishing marginal utility b. that permanent income follows a random walk; of aggregate demand shocks c. that wealth is constant; real interest rates are, more or less, constant d. a low discount factor; of the borrowing constraint e. no borrowing; income in the future is higher and the firm will A decline in the cororte income tax will a. raise the user cost of capital; put more money in the b b. increase corporate profits; offset higher capital gains by hiring more labor c. lower the capital user cost; invest in more capital d. lower the rate of capital depreciation; hire more capital e. raise the marginal product of capital; pay more taxes 39,

Answer 1

Q38) option A)

PIH assume diminishing MU, & leads to consumption smoothing,

Permanent income is the part of income that people expect to persist in future, thus any transitory change in income is spread out to maintain the consumption smoothing

Q39) option c)

As corporate tax rate falls , so tax payment falls , e is false

As user cost of capital is opportunity cost of using capital , so lower corporate tax rate leads to reduction in user cost of capital , so more capital is hired