True or False. Explain. Consumption smoothing is an implication of the neoclassi

Question

True or False. Explain. Consumption smoothing is an implication of the neoclassical model of consumption. This is because a rise in income either today or in the future reduces present value consumption, smoothing consumption. The arbitrage condition for capital shows that returns to a bank account are equal to the user cost of capital. If the real interest rate is more or less constant and the growth rate of dividends falls sharply, the price-earnings ratio would fall, all else equal. According to the Congressional Budget Office report "A 125-Year Picture of the Federal Government's Share of the Economy, 1950 to 2075," the share of government spending in GDP will climb to 40 percent by 2075, assuming current federal government policies. According to the law of diminishing returns, the longer we live, the more we will be willing to pay relatively for medical care than for other goods and services.

Explanation / Answer

(a) True

(b)False

(c)False

(d)True

(e)True

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