In the permanent-income hypothesis incorporating rational expectations, the actual cyclical pattern of consumption in the United States is too ________ to justify the assumption that a current change in income ________
A) smooth, is a poor guide to future income changes
B) volatile, is a poor guide to future income changes
C) smooth, leads to a gradual change in permanent income
D) volatile, leads to a gradual change in permanent income
B
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Economies of scale: a. are the result of a diminishing marginal product
b. pertain to the long run only. c. refer to the increase in output that results from the increased utilization of a single input. d. imply that the average total cost curve will fall continuously as output increases in the short run.
One reason that the Phillips curve "broke down" is that it
a. is unable to explain short-run movements in inflation and unemployment, but does a better job of explaining long-run movements. b. assumes a quick-acting self-correcting mechanism, and the economy has a very slow self-correcting mechanism. c. is a statistical relationship, and some of the points are not sustainable in the long run. d. cannot explain demand-side inflation, and it collapsed when demand-side inflation was predominant in the 1970s.