1、第十三章 深圳大学 宏观经济学 期末考试复习资料Chapter 13 Solutions to the Problems in the Textbook:Conceptual Problems:1.a. According to the life-cycle theory of consumption, people try to maintain a fairly stable consumption path over their lifetime. Individuals save during their working years so they can keep up the sa
2、me consumption stream after they retire. This implies that wealth increases steadily until retirement while consumption remains stable. We should therefore expect the ratio of consumption to accumulated saving (wealth) to decrease over time up to retirement. 1.b. After retirement, wealth is used up
3、to finance consumption during the remaining years. Therefore the ratio of consumption to accumulated saving (wealth) increases again after retirement, eventually approaching 1.2.a. Suppose that you and your neighbor both work the same number of years until retirement and you both have the same annua
4、l income. If your neighbor is in bad health and does not expect to live as long as you do, she will expect to have fewer retirement years in which to use accumulated wealth to finance a steady consumption stream. Your neighbors goal for retirement saving will not be as high as yours, and compared to
5、 you, she will have a higher level of consumption over her working years.Since planned annual consumption (C) is determined by the number of working years (WL), the number of years to live (NL), and income from labor (YL), we get the equation:C = (WL)/(NL)(YL).WL and YL are the same for you and your
6、 neighbor, but NL is smaller for your neighbor. Therefore you will have a lower level of consumption (C).(Note: Students may come up with a variety of different answers. For one, your neighbor, who is in bad health, currently has much larger medical bills than you do. Therefore she may not be able t
7、o save as much for retirement, even if she might expect to live as long as you. On the other hand, she may not have large medical bills now, but expects them later, as she gets older. This may induce her to save more now. While such arguments are valid, instructors should point out that the answer s
8、hould be related to the life-cycle theory.)2.b. If we assume for simplicity that the rate of return on Social Security is the same as the rate of return on private saving, then the introduction of a Social Security system based on a trust fund should not have any effect on your level of consumption.
9、 Social Security may be considered a form of forced saving, since you are forced to pay Social Security taxes during your working years and will, in return, receive benefits during your retirement years. However, most likely you would have voluntarily saved as much as the government is now “forcing”
10、 you to save with levying a Social Security tax. Therefore your consumption behavior will not change. Still, the levying of a Social Security tax reduces disposable income during your working years, increasing the ratio of consumption to disposable income (the average propensity to consume). If priv
11、ate saving were simply replaced with government saving, national saving would not be affected. In reality, however, the Social Security system is not strictly financed through a trust fund, but largely on a pay-as-you-go basis. The size of the Social Security trust fund was fairly insignificant unti
12、l the system was amended in 1983. Now the trust fund is increasing and, in effect, contributing to the federal budget surplus. But because of our aging population, predictions are that the Social Security system will experience severe financial difficulties within the next 20-30 years. If the credib
13、ility of the system becomes an issue, people may intensify their saving efforts, since they no longer feel they can rely on the public system to provide for them during retirement. In the past, most of the Social Security taxes were not saved but immediately used by the government to finance the ben
14、efits of the current retirees. This is why most economists claim that the Social Security system has led to a decrease in the national savings rate and a decrease in the rate of capital accumulation. The magnitude of this decrease, however, has not been clearly established. 3.a. If you get a yearly
15、Christmas bonus, you immediately treat it as part of your permanent income and spend it accordingly, that is, C = c(Y). In other words, your current consumption will change significantly.3.b. If you get a Christmas bonus for only this year, you will consider it as transitory income. Since your perma
16、nent income is hardly affected, you will consume only a small fraction of it and save the rest. In other words, your current consumption will not be significantly affected. 4. Gamblers (or thieves) seldom have a very stable income. However, their consumption is determined by their permanent income,
17、that is, their expected average lifetime income. Whether they have a large or small income during any given period, their consumption pattern remains relatively stable, since their permanent income is not significantly affected by temporary changes in earnings.5. Both theories, in their own way, try
18、 to explain why the short-run mpc is smaller than the long-run mpc. The life-cycle theory attributes the difference to the fact that people prefer a smooth consumption stream over their lifetime. Therefore the average expected lifetime income is the true determinant of current consumption. The perma
19、nent income theory suggests that the difference is due to measurement errors. Measured income has two components, that is, permanent and transitory income. But only permanent income is a true determinant of current consumption.6.a. One possible explanation could be that the “baby boomers” were still
20、 in their dissaving phase. In other words, if households of the baby boom generation still had to buy houses or pay for expenses related to childcare in their late twenties, they may not have been able to save for retirement yet.6.b. If the above explanation is correct, one can expect an increase in
21、 saving as these “baby boomers” age, become more financially solvent, and begin to prepare for retirement.7. The ranking from highest to lowest value should be first (a), then (d), and then (b). Clearly, (c) should be lower than (a), but where exactly it ranks after that depends largely on the sever
22、eness of the liquidity constraint.8. A series follows a random walk when future changes cannot be predicted from past behavior. In other words, it does not have a mean or clear long-run value. Any major change comes about because of random shocks. Hall asserted that changes in current consumption la
23、rgely come from unanticipated changes in income. According to the life-cycle theory or permanent-income theory, people try to smoothen out their consumption stream in such a way that its expected value is always the same in each period. Therefore, we can express future consumption as the expected va
24、lue plus some error term, that is, some random value that is unpredictable. This error term is a shock to future income that is spread over the remaining lifetime. Hall supported the permanent-income hypothesis by showing that lagged consumption is the most significant determinant of future consumpt
25、ion.9. The problem of excess sensitivity means that consumption responds more strongly to predictable changes in current income than the life-cycle theory and permanent-income theories predict. The problem of excess smoothness means that consumption does not respond as strongly to unpredictable chan
26、ges in current income as these theories predict. However, the existence of these problems does not invalidate the theories. It simply means that the theories can explain consumption behavior only to a certain degree.10. Precautionary (or buffer stock) saving can be explained by uncertainty. It could
27、 be uncertainty in regard to ones life expectancy or ones time of retirement (affecting the accumulated saving needed to finance retirement), or uncertainty about future spending needs (which may be caused by a change in family composition or health). Clearly, if we account for such uncertainties, w
28、e bring the model much closer to reality. For example, many elderly still continue to save after retirement in anticipation of predicted high medical costs not covered by Medicare.11.a. It is unclear whether an increase in the interest rate leads to an increase or a decrease in saving. On the one ha
29、nd, as the interest rate increases, the return on saving increases and people may therefore increase their savings effort (due to the substitution effect). On the other hand, a higher return on saving implies that a given future savings goal can now be reached with a smaller savings effort in each y
30、ear (due to the income effect). 11.b. The income effect and the substitution effect generally tend to go in different directions, and the overall outcome depends on the relative magnitude of these two effects. Until now, empirical evidence has not established a significant sensitivity of saving to c
31、hanges in the interest rate. This would imply that the income and the substitution effects have about the same magnitude. 12.a. According to the Barro-Ricardo hypothesis, it does not matter whether an increase in government spending is financed by taxation or by issuing debt.12.b. The Barro-Ricardo
32、hypothesis states that people realize that government debt financing by issuing bonds simply postpones taxation. In other words, people know that the government will have to raise taxes in the future to pay back what they have borrowed now. Therefore, expansionary fiscal policy that results in an in
33、crease in the budget deficit will no stimulate the economy since it will lead to an increase in saving rather than consumption. People want to be prepared to pay future taxes.12.c. There are two main objections to the Barro-Ricardo hypothesis. One is based on liquidity constraints, that is, people may want
