Question 1

The two primary explanations for the excess volatility of consumption are

Accepted Answer

A) consumers' limited life spans and credit market imperfections. 
B) credit market imperfections and changes in market prices. 
C) distorting taxes and consumers' limited life spans. 
D) changes in market prices and distorting taxes. 
E) changes in market prices and consumer's limited life spans. 
A) consumers' limited life spans and credit market imperfections. 
B) credit market imperfections and changes in market prices. 
C) distorting taxes and consumers' limited life spans. 
D) changes in market prices and distorting taxes. 
E) changes in market prices and consumer's limited life spans.

Question 2

The endowment point is the consumption bundle in which

Accepted Answer

A) households maximize utility. 
B) permanent income is maximized. 
C) households are indifferent to interest rate changes. 
D) current consumption is equal to future consumption. 
E) savings are zero. 
A) households maximize utility. 
B) permanent income is maximized. 
C) households are indifferent to interest rate changes. 
D) current consumption is equal to future consumption. 
E) savings are zero.

Question 3

An increase in first-period income results in

Accepted Answer

A) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving. 
B) a decrease in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
C) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving. 
D) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving. 
E) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
A) an increase in first-period consumption, an increase in second-period consumption, and a decrease in saving. 
B) a decrease in first-period consumption, a decrease in second-period consumption, and an increase in saving. 
C) an increase in first-period consumption, an increase in second-period consumption, and an increase in saving. 
D) a decrease in first-period consumption, an increase in second-period consumption, and an increase in saving. 
E) an increase in first-period consumption, a decrease in second-period consumption, and an increase in saving.

Question 4

When there are credit market imperfections, an increase in government debt may be advantageous because it

Accepted Answer

A) borrows at higher interest rates than consumers. 
B) discourages credit-constrained consumers from borrowing too much. 
C) encourages more private saving. 
D) eliminates the problems that cause credit market imperfections. 
E) increases the welfare of credit-constrained consumers. 
A) borrows at higher interest rates than consumers. 
B) discourages credit-constrained consumers from borrowing too much. 
C) encourages more private saving. 
D) eliminates the problems that cause credit market imperfections. 
E) increases the welfare of credit-constrained consumers.

Question 5

The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of

Accepted Answer

A) a credit market imperfection. 
B) irrational behaviour. 
C) competitive disequilibrium. 
D) a vast banking conspiracy. 
E) the burden of public debt. 
A) a credit market imperfection. 
B) irrational behaviour. 
C) competitive disequilibrium. 
D) a vast banking conspiracy. 
E) the burden of public debt.

Question 6

A consumer is a borrower if

Accepted Answer

A) the consumer's indifference curves are relatively steep. 
B) the consumer's indifference curves are positively sloped. 
C) optimum current consumption is greater than current disposable income. 
D) future disposable income is greater than current disposable income. 
E) optimum current consumption is less than current disposable income. 
A) the consumer's indifference curves are relatively steep. 
B) the consumer's indifference curves are positively sloped. 
C) optimum current consumption is greater than current disposable income. 
D) future disposable income is greater than current disposable income. 
E) optimum current consumption is less than current disposable income.

Question 7

The government's present value budget constraint states that

Accepted Answer

A) the government may run deficits each and every year, as long as the deficits are sufficiently small. 
B) the present value of government spending must be equal to the present value of consumers' disposable incomes. 
C) governments can increase spending as long as deficits are financed by issuing debt. 
D) the present value of government spending must be equal to the present value of taxes. 
E) taxes must equal government spending in each period. 
A) the government may run deficits each and every year, as long as the deficits are sufficiently small. 
B) the present value of government spending must be equal to the present value of consumers' disposable incomes. 
C) governments can increase spending as long as deficits are financed by issuing debt. 
D) the present value of government spending must be equal to the present value of taxes. 
E) taxes must equal government spending in each period.

Question 8

We assume that the representative consumer's preferences exhibit the properties that

Accepted Answer

A) current and future consumption are both normal goods and that the consumer likes diversity in his or her consumption bundle. 
B) each consumer has one strictly favourite period of time for consumption and that current and future consumption are both normal goods. 
C) current and future consumption are both normal goods and that more is always preferred to less. 
D) they are convex and that more is always preferred to less. 
E) more is always preferred to less and that each consumer has one strictly favourite period of time for consumption. 
A) current and future consumption are both normal goods and that the consumer likes diversity in his or her consumption bundle. 
B) each consumer has one strictly favourite period of time for consumption and that current and future consumption are both normal goods. 
C) current and future consumption are both normal goods and that more is always preferred to less. 
D) they are convex and that more is always preferred to less. 
E) more is always preferred to less and that each consumer has one strictly favourite period of time for consumption.

Question 9

A consumer's budget constraint in the future period is

Accepted Answer

A)  $c ^ { \prime } + ( 1 + r ) s = y ^ { \prime } - t ^ { \prime }$. 
B)  $c ^ { \prime } = y ^ { \prime } - t ^ { \prime } + ( 1 + r ) s$. 
C)  $y ^ { \prime } - t ^ { \prime } = ( 1 + r ) s$. 
D)  $c ^ { \prime } = y ^ { \prime } - t ^ { \prime } - ( 1 + r ) s$. 
E)  $c + s = y - t$. 
A)  $c ^ { \prime } + ( 1 + r ) s = y ^ { \prime } - t ^ { \prime }$. 
B)  $c ^ { \prime } = y ^ { \prime } - t ^ { \prime } + ( 1 + r ) s$. 
C)  $y ^ { \prime } - t ^ { \prime } = ( 1 + r ) s$. 
D)  $c ^ { \prime } = y ^ { \prime } - t ^ { \prime } - ( 1 + r ) s$. 
E)  $c + s = y - t$.

Question 10

In a two-period model, government spending is financed through

Accepted Answer

A) taxes only. 
B) issuing bonds. 
C) taxes and transfer payments. 
D) taxes and redeeming debt. 
E) taxes and issuing debt. 
A) taxes only. 
B) issuing bonds. 
C) taxes and transfer payments. 
D) taxes and redeeming debt. 
E) taxes and issuing debt.

Question 11

An increase in the real interest rate is an example of a

Accepted Answer

A) substitution effect and a positive income effect. 
B) substitution effect and a negative income effect. 
C) positive substitution effect and a negative income effect. 
D) pure substitution effect. 
E) substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender. 
A) substitution effect and a positive income effect. 
B) substitution effect and a negative income effect. 
C) positive substitution effect and a negative income effect. 
D) pure substitution effect. 
E) substitution effect and an income effect whose sign depends on whether the consumer is initially a borrower or a lender.

Question 12

If future income increases, and current income decreases, with lifetime wealth unchanged, a consumer

Accepted Answer

A) consumes less in the present. 
B) reduces current savings. 
C) consumes more in the future. 
D) consumes more in the present. 
E) increases current savings. 
A) consumes less in the present. 
B) reduces current savings. 
C) consumes more in the future. 
D) consumes more in the present. 
E) increases current savings.

Question 13

If government spending is held constant and Ricardian equivalence holds

Accepted Answer

A) an increase in the government budget deficit is always matched by a reduction in private savings. 
B) an increase in government savings is always matched by an equal increase in private savings. 
C) an increase in government savings is always matched by an increase in the government budget deficit. 
D) an increase in government savings is always matched by an increase in the real interest rate. 
E) an increase in government savings is always matched by an equal reduction in private savings. 
A) an increase in the government budget deficit is always matched by a reduction in private savings. 
B) an increase in government savings is always matched by an equal increase in private savings. 
C) an increase in government savings is always matched by an increase in the government budget deficit. 
D) an increase in government savings is always matched by an increase in the real interest rate. 
E) an increase in government savings is always matched by an equal reduction in private savings.

Question 14

Ricardian equivalence is often attributed to David Ricardo and more attributed to

Accepted Answer

A) Adam Smith. 
B) Robert Barro. 
C) Gerald O'Driscoll. 
D) Robert Lucas. 
E) Milton Friedman. 
A) Adam Smith. 
B) Robert Barro. 
C) Gerald O'Driscoll. 
D) Robert Lucas. 
E) Milton Friedman.

Question 15

If we represents a two-period consumer's lifetime wealth and $r$ denotes the real rate of interest, the vertical (future consumption) intercept of the consumer's budget line is equal to

Accepted Answer

A)  $\frac { ( 1 + r ) } { w e }$. 
B)  $\frac { w e } { ( 1 + r ) }$. 
C)  $w e ( 1 + r )$. 
D)  we. 
E)  $- ( 1 + r ) \mathrm { c } + w e ( 1 + r )$. 
A)  $\frac { ( 1 + r ) } { w e }$. 
B)  $\frac { w e } { ( 1 + r ) }$. 
C)  $w e ( 1 + r )$. 
D)  we. 
E)  $- ( 1 + r ) \mathrm { c } + w e ( 1 + r )$.

Question 16

A consumer's budget constraint in the current period is

Accepted Answer

A)  $c + s = y - t$. 
B)  $c = y - t$. 
C)  $c + s = y + t$. 
D)  $y = c - s$. 
E)  $y = c + i + g$. 
A)  $c + s = y - t$. 
B)  $c = y - t$. 
C)  $c + s = y + t$. 
D)  $y = c - s$. 
E)  $y = c + i + g$.

Question 17

The consumer's lifetime budget constraint states that

Accepted Answer

A) the present value of lifetime consumption must be equal to the present value of lifetime disposable income. 
B) the present value of lifetime consumption must be equal to the present value of lifetime gross income. 
C) the present value of lifetime consumption plus the present value of lifetime taxes to be paid must be equal to the present value of lifetime income. 
D) the present value of lifetime taxes to be paid by the consumer must be equal to the present value of government spending. 
E) he present value of lifetime consumption must be equal to the present value of savings. 
A) the present value of lifetime consumption must be equal to the present value of lifetime disposable income. 
B) the present value of lifetime consumption must be equal to the present value of lifetime gross income. 
C) the present value of lifetime consumption plus the present value of lifetime taxes to be paid must be equal to the present value of lifetime income. 
D) the present value of lifetime taxes to be paid by the consumer must be equal to the present value of government spending. 
E) he present value of lifetime consumption must be equal to the present value of savings.

Question 18

The government's current period budget constraint is

Accepted Answer

A)  $G + S = B$, 
B)  $G + B = T$. 
C)  $G = T + B$. 
D)  $G + T = B$. 
E)  $G ^ { \prime } = T ^ { \prime } + ( 1 + r ) B$. 
A)  $G + S = B$, 
B)  $G + B = T$. 
C)  $G = T + B$. 
D)  $G + T = B$. 
E)  $G ^ { \prime } = T ^ { \prime } + ( 1 + r ) B$.

Question 19

For a competitive equilibrium in a two-period model, which of the following is TRUE?

Accepted Answer

A) C = Y + T 
B) C = Y + S 
C) Y = C + I 
D) Y = C - T 
E) Y = C + 
A) C = Y + T 
B) C = Y + S 
C) Y = C + I 
D) Y = C - T 
E) Y = C +

Question 20

Consumption-savings decisions involve intertemporal choice as this is a decision involving a tradeoff between

Accepted Answer

A) current and future investment. 
B) consumption and saving. 
C) consumption per worker and income per worker. 
D) consumption and investment. 
E) current and future consumption. 
A) current and future investment. 
B) consumption and saving. 
C) consumption per worker and income per worker. 
D) consumption and investment. 
E) current and future consumption.

The two primary explanations for the excess volatility of consumption are

The endowment point is the consumption bundle in which

An increase in first-period income results in

When there are credit market imperfections, an increase in government debt may be advantageous because it

The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of

A consumer is a borrower if

The government's present value budget constraint states that

We assume that the representative consumer's preferences exhibit the properties that

A consumer's budget constraint in the future period is

In a two-period model, government spending is financed through

An increase in the real interest rate is an example of a

If future income increases, and current income decreases, with lifetime wealth unchanged, a consumer

If government spending is held constant and Ricardian equivalence holds

Ricardian equivalence is often attributed to David Ricardo and more attributed to

If we represents a two-period consumer's lifetime wealth and $r$ denotes the real rate of interest, the vertical (future consumption) intercept of the consumer's budget line is equal to

A consumer's budget constraint in the current period is

The consumer's lifetime budget constraint states that

The government's current period budget constraint is

For a competitive equilibrium in a two-period model, which of the following is TRUE?

Consumption-savings decisions involve intertemporal choice as this is a decision involving a tradeoff between

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters

Exam 9: A Two-Period Model: the Consumptionsavings Decision and Credit Markets

The two primary explanations for the excess volatility of consumption are

The endowment point is the consumption bundle in which

An increase in first-period income results in

When there are credit market imperfections, an increase in government debt may be advantageous because it

The phenomenon that some consumers pay a higher interest rate when they borrow than the interest rate they receive when they lend is best described as an example of

A consumer is a borrower if

The government's present value budget constraint states that

We assume that the representative consumer's preferences exhibit the properties that

A consumer's budget constraint in the future period is

In a two-period model, government spending is financed through

An increase in the real interest rate is an example of a

If future income increases, and current income decreases, with lifetime wealth unchanged, a consumer

If government spending is held constant and Ricardian equivalence holds

Ricardian equivalence is often attributed to David Ricardo and more attributed to

If we represents a two-period consumer's lifetime wealth and rrr denotes the real rate of interest, the vertical (future consumption) intercept of the consumer's budget line is equal to

A consumer's budget constraint in the current period is

The consumer's lifetime budget constraint states that

The government's current period budget constraint is

For a competitive equilibrium in a two-period model, which of the following is TRUE?

Consumption-savings decisions involve intertemporal choice as this is a decision involving a tradeoff between

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Money, Banking, Prices, and Monetary Policy

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters

If we represents a two-period consumer's lifetime wealth and $r$ denotes the real rate of interest, the vertical (future consumption) intercept of the consumer's budget line is equal to