Please indicate whether the statement in each part is true, false, or uncertain given the information provided. You must briefly justify your answer, i.e. you will not receive full credit for simply stating the answer without an explanation.

(a) (5 points) Excess returns on stocks are positive because stocks pay higher returns when households have higher marginal utility.

(b) (5 points) Under the Permanent Income Hypothesis the marginal propensity to consume (MPC) is higher for permanent income shocks than transitory income shocks.