Week 3

Question 1

“buffer stock” saving behavior meaning

Answer 1

They have a precautionary saving motive, and “impatient” in the sense that if future income were known with certainty they would choose to consume more than their current income.

Question 2

Buffer-stock savers have a target …. such that

Answer 2

Buffer-stock savers have a target wealth to-permanent-income ratio such that, if wealth is below the target, the precautionary saving motive will dominate impatience, and the consumer will save, while if wealth is above the target, impatience will dominate prudence, and the consumer will dissave

Question 3

In the buffer-stock framework, on average, the impatient groups of consumers will

Answer 3

In the buffer-stock framework, on average, the impatient groups of consumers will end up holding less wealth.

Question 4

Household income growth can be characterised as

Answer 4

Household income growth can be characterised as the sum of aggregate productivity growth and a household-specific component that reflects such factors as increasing job tenure, seniority, and experience.

Question 5

Consumption Function you expect a faster productivity growth., You’re able to accumulate

Answer 5

So if you expect a faster productivity growth., You’re able to accumulate less wealth. , . Because you are richer and if you are richer you can afford to consume a lot more.And therefore you don’t need to, to save as much basically

Question 6

Labour income innovation

Answer 6

, let’s say you’re financial institution, every year you might get a bonus high or low, you have labor income uncertainty