Which of the following is a feature of the 'Life-Cycle' and 'Permanent-Income' hypotheses taken together?
A. Both claim that only current income matters
B. Both emphasise that consumption depends on long-run resource constraints rather than current income alone
C. Both assume infinite horizons only
D. Both ignore the role of wealth
Answer: Option B
Solution (By JKSSB Mock Tests)
Both the life-cycle hypothesis and the permanent-income hypothesis assert that forward-looking consumers base consumption on expected lifetime or permanent resources rather than on current income alone.
In the context of growth empirics, 'Conditional Convergence' means that:
A.Only absolute convergence is observed
B.There is no convergence of any kind
C.All countries converge to the same income level regardless of fundamentals
D.Countries converge to their own steady-state levels of income, which may differ because of differences in saving rates, population growth and technology
Explanation:
Conditional convergence is the prediction that countries converge to their own steady states determined by their particular saving rates, population growth rates and levels of technology; poorer countries grow faster only after controlling for these differences.
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