SOLVED

1) According to the life-cycle hypothesis ________. A) households consume on the basis of their current income and liabilities. B) household consumption as a percentage of income varies over one’s lifetime. C) current income is a function of future income. D) cycling to work everyday allows one to live a longer life. 2) According to the life-cycle hypothesis, as consumers get older ________. A) the marginal propensity to consume out of wealth and income rise. B) the marginal propensity to consume out of wealth falls and the marginal propensity to consume out of income rises. C) the marginal propensity to consume out of wealth rises and the marginal propensity to consume out of income falls. D) the marginal propensity to consume out of wealth and income fall. 3) According to the life-cycle hypothesis, as people grow older ________. A) their wealth grows before and after retirement. B) their wealth declines before and after retirement. C) their wealth grows before retirement, then declines after retirement. D) their wealth falls before retirement, then rises after retirement. 4) Suppose consumers anticipate that their wealth will grow over time, because of interest earnings and capital gains. According to the life-cycle hypothesis, such optimism should cause current consumption to be ________. A) relatively low B) relatively insensitive to changes in income C) rising as individuals near retirement age D) relatively high 5) The life-cycle hypothesis applies the concept of ________ to retirement. A) income & substitution effects B) transitory income C) autonomous consumption D) consumption smoothing 6) The life-cycle hypothesis predicts what consequence of aging of the overall population? [That is, an increase in T, relative to R & L.] A) a decrease in the marginal propensity to consume out of wealth B) an increase in aggregate saving C) a decrease in the marginal propensity to consume out of income D) an increase in aggregate wealth 7) The recession of 2008-2009 demonstrated that ________. A) consumption is especially sensitive to changes in the retirement age B) changes in wealth can be a major source of fluctuations in consumption C) as consumers get older, they tend to exhaust all their savings D) permanent income is something of a misnomer 8) In 2008, the wealth of U.S. households fell by ________. A) $11 million. B) $11 billion. C) $11 trillion. D) $11 gajillion. 9) Current estimates of the marginal propensity to consume out of wealth are in the neighborhood of ________. A) three and one-half cents per dollar of wealth. B) 45 cents per dollar of wealth. C) 98 cents per dollar of wealth. D) $4.87 per dollar of wealth. 10) Advances in medical practice have increased both expected lifespans and medical expenditures. What does the life-cycle hypothesis predict as the macroeconomic consequences?