Consumption spending fluctuates much less than income fluctuates. This has been variously attributed to (i) government policy related to automatic stabilizers, and (ii) life-cycle models of consumption spending.

Describe how both (i) and (ii) can explain why consumption spending is less volatile than income.

Question 41 options:

Jay runs a fish hatchery and, at the end of the season, he finds that he has 1000 fish. He can harvest as many of the fish he wants, selling them to restaurants at $5 each. Alternatively, for every fish that he does not harvest, he will have two fish next year. For example, if he harvests 300 fish and leaves 700 fish, then he can sell 300 fish this year but will have 1400 fish next year. The fish hatchery is Jay's only income.

a. How many fish should Jay harvest if his goal is to earn the highest possible income this year?

b. How many fish should Jay harvest if his goal is for his future income to grow as quickly as possible?

c. Do you think option (a) is a good idea for Jay? Explain briefly.

d. Do you think option (b) is a good idea for Jay? Explain briefly.

e. How does this problem relate to economic growth for a country?

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