Answer Happy

Question 3 The results of tax rebates in the US A[ ] support the PIH (permanent income hypothesis) regarding its predicted size of the con- sumption response. B[ ] support the PIH regarding its implied sign for the change in savings. C[ ] can be explained by liquidity constraints since there are enough households with non- positive net worth in the US economy. D[ ] can be explained by liquidity constraints because of the behaviour of wealthier households. E)[ ] B and D. F)[ ] All of the above. G[ ] None of the above. (4 marks] Question 4 Consider a simple two-period model where consumption goods grow from trees and are perish- able. In equilibrium, all goods will be consumed. Increased uncertainty about the crop tomorrow A)[ ] raises precautionary savings, at a given interest rate. B)[ ] leads to a reduction in consumption if the interest rate clears the market. C)[ ] implies an increase in consumption if the interest rate remains fixed. DI ) none of the above. E[ ] A and B. 14 marks)