The random-walk hypothesis the permanent-income hypothesis, Ask an Expert

Economics

Suppose that Parliament passes a law to permanently cut taxes starting the next year. Assuming that consumers are not Ricardian, when would consumers adjust their consumption spending according to:

a. The Keynesian consumption function?

b. The Fisher two-period model with binding borrowing constraints?

c. The random-walk hypothesis (the permanent-income hypothesis with rational expectations) with no binding borrowing constraint?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M954614

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