1) Franco Modigliani\'s life-cycle hypothesis puts great emphasis on saving for:
ID: 1117542 • Letter: 1
Question
1) Franco Modigliani's life-cycle hypothesis puts great emphasis on saving for:
A) a house
B) medical emergencies
C) retirement
D) none of the above
2) According to the theory of Ricardian equivalence, if consumers are forward-looking, they will view a tax cut combined with no plans to reduce government spending as ______, so their consumption will ______.
A) additional disposable income; increase
B) additional disposable income; remain unchanged
C) a rescheduling of taxes into the future; increase.
D) none of the above
Explanation / Answer
1) Franco Modigliani's life-cycle hypothesis puts great emphasis on saving for retirement.
Hence option C is the correct answer.
2.
According to the theory of Ricardian equivalence, if consumers are forward-looking, they will view a tax cut combined with no plans to reduce government spending as a rescheduling of taxes into the future so their consumption will remain unchanged.
This is because if the tax is reduced today but government expenditure is not cut, then in future, there will be an increase in the tax for reducing the government deficit.
This given combination is the correct answer but in the given first three option, these combination is not given.
Therefore option d is the correct answer.
The correct combination should be a rescheduling of taxes into the future, remain unchanged.
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