1. What were Keynes’s three conjectures about the consumption function?

  2. Describe the evidence that was consistent with Keynes’s conjectures and the evidence that was inconsistent with them.

  3. How do the life-cycle and permanent-income hypotheses resolve the seemingly contradictory pieces of evidence regarding consumption behaviour?

  4. Use Fisher’s model of consumption to analyze an increase in second-period income. Compare the case in which the consumer faces a binding borrowing constraint and the case in which he does not.

  5. Explain why changes in consumption are unpredictable if consumers obey the permanent-income hypothesis and have rational expectations.

  6. Give an example in which someone might exhibit time-inconsistent preferences.