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Question from Past Macroeconomics Qualifying ExamEdit

Fall, 2004 - Question one - at George Mason University
Time series evidence suggests that consumption is proportional to income, with zero consumption at zero income. However, cross-section evidence suggests that consumption is positive even when income is zero.

  1. How does the Keynesian consumption function reconcile these two empirical facts?
  2. How does the Permanent Income model explain this apparent puzzle?
  3. Can the Life-Cycle theory of consumption explain this puzzle?

Which of these three theories has had the greater empirical success? Explain

AnswerEdit

Other QuestionsEdit

This macro-stub needs improving.

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