a. According to the permanent income hypothesis, the large drop in households' financial wealth (houses and stocks) in 2007 may have contributed to the big drop in consumption in the Great Recession. True or false? Explain briefly.

b. Liquidity constrained households have higher marginal propensity to consume than unconstrained households in response to transitory negative income shocks. True or false? Explain briefly.

c. If some households in an economy are liquidity constrained, Ricardian equivalence can fail. True or false? Explain briefly.