Understanding Consumer Behaviour

Question 1

Average propensity to consume with is between

Answer 1

0-1

Question 2

We assume here that there are no

Answer 2

taxes

Question 3

APC

Answer 3

= c

Question 4

As income rises APC falls as the consumer is able to

Answer 4

save a bigger fraction of their
income

Question 5

Intertemporal budget constraint

Answer 5

– is not your current income but your lifetime
income which is a measure of present and future consumption

Question 6

Y1, Y2 –

Answer 6

are your incomes for two periods and your consumption is the same

Question 7

If S is less than 0 this means the consumer borrows

Answer 7

in period 1

Question 8

C2=

Answer 8

= Y2 (1+r) S

Question 9

consumption is equal to

Answer 9

C = M/T where T is the time period and M
is your income in different periods

Question 10

W

Answer 10

is your initial wealth

Question 11

– Y is

Answer 11

your
annual income which is assumed to be constant

Question 12

R is

Answer 12

number of years before retirement

Question 13

T is

Answer 13

your lifetime years

Question 14

Permanent income Hypothesis

Answer 14

you do not need to spend all your income by
the end of your life – you may give it to your children

Question 15

Y =

Answer 15

YP + YT

Question 16

YP

Answer 16

is the permanent income which is your expected income for your entire lifetime at
the present moment