The apparent conflict between the time-series and cross-section evidence on the U.S.saving ratio,where cross-section studies predict a long-run ________ in the ratio that does not emerge from the time-series studies,is ________ by the permanent-income and life-cycle hypotheses.
A)rise,resolved
B)rise,created
C)fall,resolved
D)fall,created

Question

Quizplus · Accepted Answer

The apparent conflict is resolved by the permanent-income and life-cycle hypotheses, which explain why cross-section studies predict a long-run rise in the saving ratio, a trend not observed in time-series studies. These hypotheses suggest that individuals plan their savings over their lifetime, leading to predictions of a rise in savings as people age, which may not be immediately apparent in time-series data that aggregates across all age groups.

The Apparent Conflict Between the Time-Series and Cross-Section Evidence on the U.S.saving