1)Explain the key stylized facts about aggregate consumption and investment (size, volatility). List the components of consumption and investment. 2)Explain in detail the Modigliani (life‐cycle) theory of consumption. Contrast it with the Keynesian theory of consumption. 3)Explain the difference between permanent and transitory income. Which of the two is important for consumption in the Friedman theory?
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Problem Set 1. EC 302
Please, answer all the questions below and return the problem set in class Wednesday,
January 31.
1) Explain the key stylized facts about aggregate consumption and investment (size, volatility). List
the components of consumption and investment. (7 points)
2) Explain in detail the Modigliani (life‐cycle) theory of consumption. Contrast it with the Keynesian
theory of consumption. (8 points)
3) Explain the difference between permanent and transitory income. Which of the two is
important for consumption in the Friedman theory? (7 points)

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