What effect have Medicare subsidies had on the consumption of medical services?
A) The consumption of medical services has been unaffected, because people don't consider the financial cost when seeking services related to their health.
B) The consumption of medical services has been unaffected, because government restrictions have prevented patients from seeking a level of care above and beyond what they would choose if they had to pay for medical treatment out of pocket.
C) The consumption of medical services has increased because Medicare subsidies give people the incentive to seek more care than they would otherwise.
D) The effect cannot be measured because it is difficult to quantify the amount of resources devoted to our health care system.
Answer: C
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Suppose that medical researchers discover a new drug which slows the aging process, allowing the average life span in the United States to increase to 95 years of age. The permanent-income hypothesis suggests that
A) consumption spending would increase since lifetime income increases. B) consumption spending would increase since estimates of permanent income would increase. C) consumption spending would decrease since savings would rise to provide income for the longer retirement periods. D) None of the above is correct since predicted future annual incomes may not change.